Japan's May manufacturing PMI back in expansion

TOKYO (REUTERS) - Japanese manufacturing activity expanded in May for the first time in two months as domestic orders and output rose, suggesting the economy may be grinding higher again after faltering in April.

The Markit/JMMA final Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 50.9 in May, unchanged from the preliminary reading but higher than a final 49.9 in April.

The index returned above the 50 threshold that separates contraction from expansion for the first time in two months.

New orders rose to 50.9, versus a flash estimate of 51.2 and a final 48.8 in April.

The output index rose to 51.9, slightly more than the flash estimate of 51.7 and 49.3 in April.

The index for new export orders was 50.6, slightly above a preliminary 51.2 and a final 50.3 in the previous month.

An expanding manufacturing sector is important for the economy because it would suggest domestic demand is becoming stronger, which would lead to higher growth and make it more likely that the Bank of Japan can meet its 2 per cent inflation target.

Data on Friday showed household spending unexpectedly slumped in April and consumer inflation was roughly flat, casting doubt on the central bank's forecast for a slow but steady economic recovery and reinforcing expectations it will have to pump more stimulus into the economy later in the year.

Industrial output rose a modest 1 per cent, the first increase in three months, though manufacturers expected a smaller gain in May and a slight drop in June.

April exports grew more than expected from a year earlier but fell from March - a worrying portent for external demand as a slowdown in the economies of China and the US clouds the outlook for Asia's exporters.