February 3, 2020 / 1:11 AM / 25 days ago

RPT-Japan's factory activity contracts again in January, virus raises fresh risks

(Repeats to attach to corrected alert. No change to text.)

TOKYO, Feb 3 (Reuters) - Japan’s manufacturing activity shrank for a ninth month in January as output and new orders contracted again, pointing to further strains on the economy, a business survey showed on Monday.

That pressure could build rapidly in coming weeks as a virus outbreak raises the risk of a sharp blow to China’s economy that would weigh on its Asian neighbours. China is one of Japan’s top export markets, and many Japanese firms are plugged solidly into its supply chains.

The latest factory survey showed Japanese manufacturers were already on the back foot at the start of the year, despite signs that shaky global demand was starting to stabilise.

The Jibun Bank Final Japan Manufacturing Purchasing Managers’ Index (PMI) edged up to a seasonally-adjusted 48.8 from December’s final 48.4 reading.

But the index was down a notch from a preliminary reading of 49.3. It also stayed below the 50.0 threshold that separates contraction from expansion for a ninth month - the longest such stretch since a similar run to February 2013.

“Manufacturing PMI data for Japan are still portraying a struggling industry,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“The capital goods sector was a particular straggler, with data here showing sharp and accelerated reductions in production and new orders.”

Soft exports and factory activity have been a headache for Japanese policymakers. They are hoping business and household spending at home will be robust enough to offset the economy is taking from those weaknesses.

Many analysts expect the world’s third-largest economy to have shrank in the fourth quarter of 2019 as a sales tax hike from October hit consumption, one of the main drivers of domestic growth.

Economists had forecast a modest rebound this year, but that outlook is now clouded by the China outbreak, which the World Health Organization declared last week was a global emergency.

The PMI survey showed overall output and new orders slipped again, shrinking for the 13th straight month, though their pace of decline was less fast compared to the previous month.

However, there were some positive signs. The pace of contraction of new export orders eased to its slowest level since November 2018, while output expectations strengthened to a 17-month high of 57.0.

“Manufacturers of intermediate goods, which include electronic components, reported a particularly sharp rise in optimism, serving as an early signal of the positive impact receding global trade frictions will have on the industrial economy,” said IHS Markit’s Hayes.

Reporting by Daniel Leussink; Editing by Kim Coghill

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