Japan February manufacturing PMI growth slows before tax hike

TOKYO Thu Feb 27, 2014 6:55pm EST

A man works inside a factory in Tokyo August 12, 2013. REUTERS/Yuya Shino

A man works inside a factory in Tokyo August 12, 2013.

Credit: Reuters/Yuya Shino

TOKYO (Reuters) - Japanese manufacturing activity in February pulled back from an eight-year high set the previous month, a survey showed on Friday, suggesting a slight slowdown in factory output before a sales tax increase in April.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 55.5 in February from 56.6 in January.

The index remained above the 50 threshold that separates expansion from contraction for 12 straight months but declined for the first time in seven months.

"April's forthcoming sales tax hike looks set to test the current sequence of expansion, particularly given the recent slowdown evident in new export order growth, indicating that the current expansion is primarily driven by domestic demand," said Paul Smith, senior economist at Markit.

The index for new export orders fell to 51.5 from 52.8 in the previous month for the third consecutive month of declines.

The output component of the PMI index fell for the first time in two months to 58.4 from 61.1 in January, which is the highest since the data series began in October 2001.

Prime Minister Shinzo Abe's government will raise the 5 percent sales tax to 8 percent in April to pay for rising welfare costs.

Since the middle of last year, sales of apartments, houses, cars and durable goods have been rising as consumers look to buy big-ticket items before the tax increase.

Some economists worry the tax hike may hit consumption harder than expected later this year, and speculate the Bank of Japan may need to ease monetary policy. There are already signs momentum is stalling, with the economy growing at a much slower pace than expected at the end of last year.

However, many BOJ officials have recently played down the need for more easing, arguing that the tax hike will have only a temporary impact.

(Reporting by Stanley White; Editing by Jacqueline Wong)

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