TOKYO (Reuters – Japan’s manufacturing activity grew by an eleventh consecutive month in December. But, the pace was lower than that of the previous month due to a softening in output and new orders growth while costs pressures remained elevated.

As the impact of coronavirus was lessened, businesses saw some relief. However, new export sales growth declined amid an increase of COVID-19 in South Korea.

On a seasonally adjusted basis the December au Jibun Bank Japan Manufacturing Purchasing Managers’ Index fell to 54.3, a decrease from 54.5 in the month before.

This figure was still comparable to 54.2 Flash readings and indicated a significant improvement in manufacturing sector operating conditions.

According to Usamah Bhatti (economist at IHS Markit), “Domestic markets have been buoyed after a gradual recovery form the COVID-19 epidemic.”

The recovery of parts supply has helped ease some of the pressures within car manufacturing. But high-tech chip demand is still very strong around the world.

The survey revealed that foreign orders for Japanese-made goods experienced a slower growth rate than the annual average. This was due to a sharp increase in coronavirus infection, particularly in South Korea.

Japan’s third quarter 2021 chip shortage caused an economic contraction of 3.6%. It was partly due to lower output and exports as a result.

Bhatti noted that while output will rebound in last quarter, average lead times for manufacturers across the period showed their worst quarterly performance ever since the survey began.

“Though optimistic, Japanese goods manufacturers were concerned about the ongoing impact of pandemics, supply chain disruptions, and this resulted to confidence plummeting to their lowest point since August,” he said.