Japan January manufacturing PMI at 8-year high

[January 31, 2014]  TOKYO (Reuters) — Japanese manufacturing activity grew in January at the fastest pace in nearly eight years as new orders for goods expanded at a record rate, a sign of robust domestic demand before an increase in the sales tax in April.

The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 56.6 in January from 55.2 in December.

The index remained above the 50 threshold that separates expansion from contraction for the 11th consecutive month and reached the highest level since February 2006.

"Evidence from panelists suggested that the upcoming rise in the sales tax was a key factor driving the recent expansion, as customers order early to avoid the higher tariff," said Claudia Tillbrooke, economist at Markit.

"However, the continued expansion of employment, suggests a degree of confidence in the longevity of the current upturn."

The output component of the PMI index rose to 61.1 from 58.3 in December to reach the highest since the data series began in October 2001.

The index for new export orders fell to 52.8 in January from 55.7 in the previous month.

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 in the year, and speculate the Bank of Japan may have to add additional stimulus to the economy soon to limit the damage.

However, the governor of the Bank of Japan last week dismissed the need for additional monetary easing as prices are headed toward its inflation target and as overseas economies and demand recover.

(Reporting by Stanley White; editing by Kim Coghill)

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