Japan PMI manufacturing improved to 49.6 in July, up from 49.3, but missed expectation of 49.7. PMI services rose to 52.3, up from 51.9. PMI composite rose to 51.2, up from 50.8.

Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

“Trends witnessed in the Japanese private sector so far in 2019 were more-or-less maintained at the start of the third quarter. Composite ‘flash’ data for Japan show a modest improvement in private business output in July, with consumption of services supporting the economy, as it has done in the year-to-date. Overall private sector output expanded at the fastest pace in seven months on the back of faster growth in services activity.

“The manufacturing sector’s plight continued, however, where production was cut in July for the seventh successive month. Weak demand from China remained a key factor behind sluggish demand for Japanese goods. Heightened frictions between Japan and South Korea also add downside risk to the manufacturing supply chain in Japan, creating additional slack that services may once again have to compensate for.”

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According to the monthly economic report by Japan’s Cabinet Office, the economy is “recovering at a moderate pace,” but there was “weakness continuing mainly in exports.” Asia bound exports were particularly poor due to China’s slowdown and weaker demand for high-tech products. .

Nevertheless, the reference to weakness in “industrial production” in the June report was dropped. Instead, production of “transport goods continued to increase, while the decline in machinery production could be seen easing a little,”

Businesses show “cautiousness further” but investment is still “on the increase at a moderate pace”. Also, employment situation is “improving steadily” while private consumption is “picking up”.

In Japan, Kyodo news reported today that Chief Cabinet Secretary Yoshihide Suga and Finance Minister Taro Aso will likely retain their posts in a cabinet reshuffle . Prime Minister Shinzo Abe said he has noted decided on the cabinet yet, after winning a solid majority in the upper house election on Sunday. The new cabinet will likely be announced in September.

Separately, Aso said after a cabinet meeting that the election gave the ruling coalition a stable political footing. Hence, he said, “I believe we won public trust for the sales tax hike”.

This somewhat echoed Abe’s comment yesterday that based on a stable political basis, the Abe cabinet will take more aggressive and bold economic measures than ever.”

Japanese Prime Minister Shinzo Abe’s ruling coalition kept a solid majority in the upper house election. He said today that “based on a stable political basis, the Abe cabinet will take more aggressive and bold economic measures than ever.”

Abe said “uncertainty remains over the global economic outlook such as trade frictions and Britain’s exit from the European Union… We’ll respond to downside risks without hesitation and take flexible and all possible steps.”

The Japanese government has designated JPY 2T in stimulus measures to offset the impact of the planned sales tax hike, from 8% to 10% in October. Abe also noted “we will underpin domestic consumption which accounts for the bulk of the economy by taking sufficient measures.”