TOKYO (Reuters) - Japan's factory activity shrank at the fastest pace in eight months in November as soft demand prompted firms to trim production, a private-sector survey showed on Monday.
The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) slipped to 49.0 in November, the lowest level since March, from 49.2 in October. The index was unchanged from the flash reading and remained below the 50.0 threshold that separates growth from contraction for the fifth straight month.
"The performance of the Japanese manufacturing sector was downbeat in November," said Usamah Bhatti at S&P Global Market Intelligence.
The subindex of new orders extended its contraction in November but at a moderate pace from October. It remained below the break-even 50 mark for one-and-a-half years. Subdued demand in both Japan and overseas were the main factors behind the contraction. New exports extended declines for the 33rd straight month.
Firms also adjusted their output due to weak demand, especially in the semiconductor and automotive sectors. This led output to record its fastest fall since April. Employment also shrank for the first time in nine months.
Input cost pressures, however, remained strong due to higher prices of labour, logistics and raw materials, especially from abroad. Output price inflation was at its highest level since July.
"Firms opted to raise selling prices at a stronger rate in order to protect margins," said Bhatti.
Japan's government data showed on Friday that core consumer inflation in Tokyo accelerated in November and stayed above the Bank of Japan's 2% target, keeping alive market expectations for a near-term interest rate hike.
Despite subdued demand, manufacturers stayed positive about their business outlook with the level of confidence rising to the highest in three months, underpinned by hopes for new product launches and a broad economic recovery, the survey showed.