TOKYO (Reuters) - Japanese factory activity sank to more than a three-year low in October, with the sixth-straight month of contraction largely led by shrinking new orders and output in a fresh warning sign for the world’s third-largest economy.
The Jibun Bank Final Japan Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.4 on a seasonally adjusted basis, hitting the lowest level since June 2016.
The figure was down a notch from last week’s preliminary October reading of 48.5, and compared to a final 48.9 in the previous month.
The index has stayed below the 50.0 threshold that separates contraction for six months, matching a similar stretch from March to August in 2016.
“Worrying signs for Japanese manufacturers appeared at the start of the fourth quarter,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“With weak regional growth across Asia and signs of fragility within the domestic economy, it is difficult to see any respite coming in the near-term.”
The deterioration in business conditions was driven by a steeper drop in demand, partly due to front-loading of purchases ahead of a sales tax hike coming to an end.
Japan raised its national sales tax to 10% in October, the first increase since a hike to 8% from 5% in April 2014.
The PMI data showed total new orders shrank at their fastest pace since May 2016, while factory output and new export orders were also in contraction. Total new orders and output stayed in contraction for the 10th straight month.
The dim survey results and other weak data recently highlight why policy makers and investors remain worried about the growing economic impact of heightened trade tensions and weaker growth around the world.
They came a day after the Bank of Japan kept monetary policy steady as expected but offered a stronger signal it may cut interest rates in the future, underscoring its concern that overseas risks could derail the country’s fragile economic recovery.
IHS Markit said panellists attributed lower output volumes to the impact of a powerful typhoon, as well as spillover effects from U.S.-China trade frictions.
Data this week showed Japan’s industrial output rebounded in September while retail sales jumped the most in over 5 years, but exports continued to contract and a sales tax hike last month has raised concerns the economy could tip into recession.
Reporting by Daniel Leussink; Editing by Shri Navaratnam