Factories in Japan suffer dwindling fortunes

Photo credit: DepositPhotos
Photo credit: DepositPhotos

After the pandemic, manufacturers in Asia’s two biggest economies are doing very different things.

Last month, factory work in China grew at its fastest rate in over than a decade, according to official numbers.

In February, however, factories in Japan stopped making things at the fastest rate in more than two years.

Firms worldwide are trying to decide whether or not to reopen as Covid loosens restrictions and costs go up for everything from energy to wages.

According to China’s Bureau of Statistics, the PMI for manufacturing rose from 50.1 in January to 52.6 in February. Since April 2012, this was the best reading for a month.

PMIs are a way to measure economic trends and tell businesses, central banks, governments, and investors important information about how business is going now and in the future.

The PMI is a number between 0 and 100. If the number is above 50, there has been more activity since the last month. If the number is below 50, the economy is getting smaller. The change is bigger the further away from 50 the number is.

China has the second-largest economy in the world. At the end of last year, strict coronavirus measures were eased, which helped the country do much better than expected.

Due to widespread lockdowns and the spread of Covid-19, 2022 was one of the worst years for the country in the past almost 50 years.

In Japan, private manufacturing PMI dropped from 48.9 in January to 47.7 in February. It was the biggest drop since September 2020.

The data showed that the biggest problems for businesses in the world’s third-largest economy are a global slowdown, a rise in the price of raw materials, and calls for firms to raise wages for their workers to help them pay for the high cost of living.

The numbers came out a day after government data showed that Japanese factories, especially those that make cars and computer chips, cut production in January at the fastest rate in eight months.

Can the Bank of Japan fix the economy?

As Japan’s prime minister picks the new head of the country’s central bank, it’s clear that the job comes with some big challenges.

The most recent numbers from the government show that the economy is recovering from the pandemic much more slowly than expected.

Prices are going up faster than they have in over 40 years.

So, what can professor Kazuo Ueda do to fix the world’s third-biggest economy?

If Japan’s parliament chooses Mr. Ueda to be the Bank of Japan’s next governor (BOJ) governor, the economy will grow slowly, and inflation will be the highest since 1981.

In the last three months of 2022, Japan’s economy grew by 0.6%, much less than the 2% growth that economists had predicted.

Also, data from December showed that core consumer prices went up by 4% from a year ago. This was twice the rate the central bank wanted to see.

Experts say that the next governor of the Bank of Japan (BOJ) will need help raising interest rates to stop inflation without hurting the economy’s fragile growth.

The main reason is that things outside of the country, like the war in Ukraine, have driven up prices more than the strength of the economy.

Last week, investors were surprised to hear that Japan’s Prime Minister Fumio Kishida would pick Mr. Ueda to replace Haruhiko Kuroda, who had been in the job for ten years.

Even though Mr. Ueda is a professor, he knows about the central bank. From 1998 to 2005, he was on the BOJ’s policy board.

In 1999, when the central bank tried to boost the economy by lowering the cost of borrowing to zero, he worked there.

But Mr. Ueda wasn’t at the BOJ when it capped the interest rates paid on government bonds, which was controversial.

Even though the policy known as yield curve control (YCC) doesn’t affect regular consumers much, investors have been putting pressure on the central bank to get rid of it because the returns on their investments have been going down.

Last week, the financial markets were glad to hear that Mr. Ueda had been chosen because he was likelier than other candidates to get rid of the policy.

Some people see Mr. Ueda as a realist who can adapt to a changing economy, even though the challenges he will face as the next governor of the BOJ may be scary.

Read Also: Japan: Inflation touches highest in 41 years

In a report, Jesper Koll, an economist, said, “Ueda is not a person of dogma; he is a man of science. He has a lot of ideas and isn’t afraid to try them out in the real world.”

He only does things after thinking about them first. So instead of looking for big, quick wins, he will try to make the best, most sustainable policy framework.