TOKYO (Reuters) - Japan's factory activity contracted for a fifth straight month in October, a survey showed on Wednesday, as subdued demand and inflationary pressures squeezed businesses.
The final au Jibun Bank Japan manufacturing purchasing managers' index (PMI) stood at 48.7 in October, slightly improved from 48.5 in September, but still below the 50.0 point threshold that separates growth from contraction.
Subindexes of output and new orders also contracted for a fifth straight month in October. Respondents said that sales demand at home and abroad was weak.
New exports orders fell for a 20th straight month with higher prices weighing on sales. The Chinese market was particularly weak.
"Companies continued to batten down the hatches by cutting purchasing, not replacing leavers and focusing on smart inventory management to minimise any unnecessary plant costs," said Usamah Bhatti at S&P Global Market Intelligence, which compiled the survey.
The survey showed the subindex gauging employment slipped for the first time since February 2021 as firms didn't replace headcount due to weaker output and order books.
"Inflationary pressures remained somewhat sticky, with costs again rising quite steeply and charges up to a marked degree," Bhatti said.
Fuelled by rising costs of raw materials and a weak yen, inflation has weighed on firms and clouded the economic outlook.
The tame PMI data came after official figures showed Japan's factory output rose much less than expected in September as demand slowed significantly.
On the bright side, manufacturers remained confident about the outlook, supported by hopes of improvements in demand, the inventory cycle and key sectors such as autos and electronics.