According to a preliminary business survey published by Reuters, Japanese manufacturing activity shrank for a fourth straight month in August, as export orders fell at a sharp pace, although service-sector activity expanded at the fastest rate in nearly two years, suggesting that resilient domestic demand is continuing to offset some of the strong external pressures on the economy.

The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 49.5 (from a final 49.4 in July), but it stayed below the 50.0 threshold that separates contraction from expansion for a fourth month.

Factory output and total new orders contracted again, though at a slightly more moderate pace than in July.


Other key activity gauges in the PMI report offered a mixed picture; employment expanded, while the backlog-of-work index rose to an eight-month high — but still remained in contraction.

A separate survey showed that Japanese service-sector activity expanded, which in turn helped to lift a composite PMI index that includes both manufacturing and services: the Jibun Bank Flash Japan Services PMI reached 53.4 in August (from a final 51.8 in July on a seasonally adjusted basis) — the highest level since October 2017.

Joe Hayes, an economist at IHS Markit (www.ihsmarkit.com), which compiles the survey, said: “Solid growth seen in GDP so far this year could stretch into the third quarter, providing a timely boost before the fourth quarter, which is likely to be adversely impacted by the consequences of a sales tax hike.”