Japan manufacturing sector expands in May as China remains in contraction

Japan's manufacturing sector expanded in May, indicating an improvement in operating conditions, while that in China contracted with production declining for the first time in 2015.

The Markit flash Japan manufacturing purchasing managers' index (PMI) – the earliest available indicator of manufacturing sector operating conditions in Japan – for May rose to 50.9 in May from 49.9 in April.

A reading above 50 indicates expansion in the sector, and vice versa.

Output and new orders reversed from decline during May, while new export orders increased at a faster rate.

"Reflective of an overall improvement in operating conditions at Japanese manufacturers was a return to growth of both production and new orders in May," said Amy Brownbill, economist at Markit.

"Moreover, the rates of expansion were faster than their respective long-term averages. Subsequently, employment rose at the quickest rate since December last year, while buying activity increased for the third time this year so far."

"Meanwhile, input prices increased at the weakest rate in the current 29-month sequence of inflation, while charges stabilised, following a three-month period of decline."

A similar PMI, compiled by Markit and HSBC and gauging manufacturing sector in China, showed a reading of 49.1 in May, compared to 48.9 in April.

A sub-index measuring manufacturing output fell to a 13-month low of 48.4 from 50 in April.

In addition, new orders, new export orders and employment declined in May.

"The Flash China Manufacturing PMI pointed to a further deterioration in operating conditions in April, with production declining for the first time in 2015 so far," said Annabel Fiddes, economist at Markit.

"Moreover, softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near term, as companies tempered production plans in line with weaker demand conditions."

"On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required."

The flash data is based on 85%–90% of total PMI survey responses. The final May data is slated to be published on 1 June.