According to data released by Markit/JMMA Wednesday, the headline Purchasing Managers’ Index (PMI) fell to 46.9 in October, down from 48 in September. Any index number below 50 indicates an economic contraction. The continued shrinking of country's manufacturing activity would increase likelihood of a sharp contraction in the economy.
“October’s survey indicated further reductions in both pre- and post-production inventories. Manufacturers also cut back on their purchasing of inputs. The poor trend in incoming new order volumes was reported to have discouraged buying activity, and led manufacturers to meet output and order requirements directly out of stock wherever possible,” Markit Economics and JMMA said in a statement.
The continuing debt crisis in Europe and the strength of the yen have also hurt the demand for exports, the key driver of Japan's economy.
“Sub-par industry performance continues to be closely linked with underlying export weakness. Based on a historical comparison with PMI data, overseas shipments are estimated to have fallen at a quarterly pace of close to -4 percent in October, as global growth remains sluggish, particularly in key export markets such as China,” Paul Smith, a senior economist at Markit Economics, said in a note.
This report comes after it was reported Tuesday by the Ministry of Economy, Trade and Industry that Japan’s industrial production, which measures the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities, fell 4.1 percent in September, down from a 1.6 percent decrease in August.