Japan’s economy slows

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While the Nomura/JMMA Purchasing Managers Index for July continues to signal expansion in Japan’s manufacturing sector, the Index fell for the second consecutive month to 52.8%. According to Markit, the rate of expansion in manufacturing production was the slowest in more than a year.

The PMI number points to a probable slowdown in Japan’s economy in the second quarter. I expect Japan’s GDP to be 1.0% higher than the first quarter or 4.1% quarter on quarter annualised compared to 5% in the first quarter. On a year-ago basis Japan’s GDP has probably slowed to 3.5% from 4.2% in the first quarter.

Sources: Markit; Dismal Scientist; Plexus Asset Management.

With Japan a major trading partner of China, the number does not augur well for the July CFLP China Manufacturing PMI to be released on Monday, especially as August tends to be a weak month seasonally.

Sources: Li & Fung; Plexus Asset Management.

I will not be surprised if these numbers cause some duress in equity markets while mature-market bonds see further safe-haven buying.

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