Japan PMI manufacturing PMI dropped to 48.5 in February, down from 50.3. That’s the lowest level in 32 months and the first contraction reading since 2016. Markit noted that “deterioration in manufacturing sector reflects stronger falls in production and new orders.” Also, “future output expectations turn negative for the first time since November 2012.”

Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

“Survey data for Japan’s manufacturing sector ebbed into negative territory in February, reflecting sharper reductions in demand and production. Although the initial Q4 estimate revealed a bounce back in economic activity, the PMI suggests underlying business conditions are unfavourable. This was further highlighted by output expectations turning negative for the first time in over six years, which comes as no surprise given the international headwinds Japanese manufacturers are facing such as a China slowdown and the global trade cycle losing further steam. Unless service sector activity can offset manufacturing weakness, the chance of Japan entering a recession in 2019 looks set to rise.”

Full release here.

Japan GDP contracted -0.2% qoq in Q1, worse than expectation of 0.0% qoq. On annualized basis,GDP contracted -0.6% versus expectation of -0.1%. The contraction marked the end of eight straight quarters of growth. And that was the longest streak since 1989. GDP deflator, however, rose 0.5% yoy, beating expectation of 0.3% yoy.

But it’s generally believed that the contraction is temporary. In particular, a relatively weaker Yen at 100 against Dollar and global recovery, export led Japanese economy remains on solid footing for expansion.

Also from Japan, industrial production was revised up to 1.4% mom in March, from first estimate of 1.2% mom.

Japan’s industrial production expanded for the second consecutive month, recording a 0.8% mom growth in March, surpassing the expected 0.4% mom increase. The growth was driven by output in eight sectors, led by motor vehicles, while declines were observed in seven sectors, including electronic components and devices.

The Ministry of Economy, Trade and Industry upgraded its basic assessment for the month, stating that industrial production was “showing signs of moderately picking up” as parts supply shortages continued to ease. This is a marked improvement from the previous month’s assessment of “weakening.” The ministry also projects a further 4.1% growth in industrial production for April and a -2.0% decline in May.

Other economic indicators released include 7.2% yoy increase in retail sales for March, surpassing expectations of 6.5% yoy. However, unemployment rate rose for the second month in a row, reaching 2.8%, above expectation of 2.5%.

April, Tokyo core CPI, which excludes fresh food, accelerated from 3.2% to 3.5% yoy, exceeding expectations of 3.2% yoy. Core-core CPI, which excludes fresh food and fuel costs, accelerated from 3.4% to 3.8% year-on-year, marking the highest rate since April 1982.