TOKYO, (Reuters) - Japanese manufacturing activity expanded in October at the fastest pace in seven months as domestic and overseas orders increased, a survey showed on Thursday, in an encouraging sign that the economy may finally be recovering from an April sales tax hike.
The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.8 in October from a final reading of 51.7 in September.
The index remained above the 50 threshold that separates expansion from contraction for a fifth month and reached the highest level since March.
The survey showed manufacturers have overcome a temporary build-up in inventories after the tax hike and suggests that output could increase towards year end, which would make it easier for the government to decide on whether to proceed with a second sales tax rise slated for October 2015.
The index for new domestic orders jumped to a preliminary 55.1 in October, the highest in eight months.
The flash index for new export orders also gained to 52.6 from a final 51.1 in September.
The output component of the PMI index fell slightly to a preliminary 52.3 from 53.4 in the previous month.
Manufacturing and consumer spending weakened after the government raised the sales tax to 8 percent from 5 percent in April, pushing Japan’s economy into its deepest quarterly slump since the 2009 global financial crisis.
The second increase will bring the sales tax to 10 percent, and is part of a plan to pay for rising welfare spending.
Prime Minister Shinzo Abe has said he will decide by year-end whether to proceed with the second tax hike. One of Abe’s top economic advisers, Etsuro Honda, urged on Wednesday that the move be delayed until April 2017.
Signs of a rebound in manufacturing and a pick-up in export demand could ease some politicians’ worries that the economy cannot withstand blow from another tax hike.
The final Markit/JMMA PMI for October will be released on Nov. 4.
Reporting by Stanley White; Editing by Kim Coghill