2014.09.0100:11:00UTC+00Japan Manufacturing Sector Continues To Expand

The manufacturing sector in Japan expanded at an accelerated pace in August, the latest survey from Markit Economics revealed on Monday with a purchasing managers' index score of 52.2.

That missed forecasts for 52.4, although it's up significantly from 50.5 in July.

The August reading moves further above the boom-or-bust mark of 50 that separates expansion from contraction.

"Japan's manufacturing output and new orders growth rose at the fastest pace since before the sales tax increase was implemented in April. The latest data, therefore, shows some confidence that the negative effects of the higher sales tax seem to be disappearing, with a return of client confidence and a wider improvement in the Japanese economy," said Markit economist Amy Brownbill.

Among the individual components of the survey, the sub-indexes for new business and output growth were up sharply, while job creation was maintained.

Purchasing activity rose on the back of new order growth, while stocks of inputs declined for the second month in a row. Staffing levels expanded fractionally, while backlogs of work increased, albeit marginally. On the price front, input costs rose at a marked pace, while output charges fell slightly.

Higher output was largely reflective of increased new orders, while the rate of expansion in new business was sharp and the highest since March. Growth of new business contributed to a rise in backlogs of work for the first time in five months in August.

Meanwhile, stocks of finished goods rose for the second month in a row, while cost inflationary pressures persisted in August as input prices continued to rise at a marked pace. Low stock levels at suppliers led to a lengthening of delivery times for the second month in a row.

"It will be interesting to see whether this return to growth will be sustained, keeping in mind that another sales tax hike may be implemented in October 2015," Brownbill said.

Also on Monday, the Minist6ry of Finance said that capital spending in Japan was up 3.0 percent in the second quarter of 2014.

That missed forecasts for an increase of 4.1 percent, and it was sharply lower than the 7.4 percent gain in the previous three months.

Excluding software, capex gained 1.9 percent - beating expectations for an increase of 1.0 percent but still sharply lower than the 8.3 percent spike in Q1.