Japan Private Sector PMIs for May Beat Forecasts

It was a relatively busy start to the day on the Asian economic calendar. Prelim private sector PMI numbers for May were in focus this morning. While PMIs from Australia drew interest, the Japan Private Sector PMI figures had more influence.

Japan’s Manufacturing PMI increased from 49.5 to 50.8 in May, with the Services PMI rising from 55.4 to 56.3. Economists forecast PMIs of 49.5 and 55.2, respectively.

According to the prelim May survey,

• The growth rate across the private sector was the most marked since October 2023 and the second strongest in the survey history.
• In May, the services sector saw a record increase in business activity, while the manufacturing sector expanded for the first time since October 2022.
• New orders grew at a faster rate across the services sector, with the manufacturing sector seeing a pickup in new orders.
• Service sector firms reported a pickup in new export orders, while manufacturers continued to see weak demand from overseas.
• Output price inflation softened across the private sector, while services firms reported a pickup in input prices.

The prelim private sector PMIs from Japan could fuel bets on a Bank of Japan tweak to its ultra-loose monetary policy stance, despite the machinery order numbers from Monday.

USD/JPY Price Action

Ahead of the PMI numbers, the USD/JPY rose to an early high of 138.800 before falling to a low of 138.459.

However, in response to the PMIs, the USD/JPY rose to a post-stat high of 138.542 before falling to a session low of 138.423.

This morning, the USD/JPY was down 0.09% to 138.473.

Next Up

Prelim private sector PMI numbers from Europe will draw interest early in the European session. A pickup in private sector activity would ease recessionary fears, though the threat of tighter credit conditions on growth remains.

Looking ahead to the US session, it is a busy day on the US economic calendar. Prelim US private sector PMI numbers for May will provide direction. While the headline figures will influence, investors should consider the sub-components. We expect the employment, pricing, and new order components to have the most impact.

However, Fed commentary and debt ceiling-related news will influence. While investors should monitor Fed chatter, progress toward a debt ceiling deal would drive demand for riskier assets.