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Japan’s manufacturing activity grew for an 11th straight month in December, but at a slower pace than in the prior month as output and new order growth softened while cost pressures stayed elevated.

Businesses benefited from the weakening impact of the coronavirus pandemic as they shook off some of the drag of the health crisis, though new export sales growth eased amid a rise in COVID-19 cases in South Korea.

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) in December fell to 54.3 on a seasonally adjusted basis, easing from the previous month’s 54.5.

The figure, which compared with a 54.2 flash reading, still pointed to a solid improvement in operating conditions in the manufacturing sector.

“Domestic markets were buoyed by a gradual recovery from the COVID-19 pandemic,” said Usamah Bhatti, economist IHS Markit, which compiles the survey.

A recovery in parts supplies eased some of the strains in car manufacturing, even as high-tech chips remain in great demand around the world.

But foreign orders for Japanese manufactured goods saw their growth rate soften compared to the average for the year as a whole as a sharp rise in coronavirus infections, especially in South Korea, hurt demand, the survey showed.

Japan’s economy suffered from the global chip supply shortage in the third quarter of 2021, declining an annualised 3.6% in part due to a blow to output and exports in that quarter from production bottlenecks.

While output is expected to rebound in the final quarter last year, manufacturers’ average lead times across that period registered their worst quarterly performance since the survey began, Bhatti said.

“Though still optimistic, Japanese goods producers were wary of the continued impact of the pandemic and supply chain disruption, which resulted in confidence dipping to the softest since August,” he added.