Japan's factory activity improves in April but more virus measures loom

TOKYO, April 23 (Reuters) - Japan’s factory activity expanded at the fastest pace in more than three years in April, a private business survey showed on Friday, even as expected coronavirus emergency measures clouded the outlook for the world’s third-largest economy.

But activity in the service sector contracted for a 15th month, the survey showed. Services companies are likely to take the biggest hit from a surge in COVID-19 cases and new emergency curbs expected to be rolled out in key prefectures from Sunday.

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 53.3 in April from a final 52.7 in March.

The reading, which marked the highest level since April 2018, meant manufacturing activity came in above the 50.0 threshold that separates contraction from expansion for the third consecutive month.

The PMI survey showed that activity was helped by an improvement in orders at home and from overseas, as well as growing output.

Backlogs of work were positive for the second straight month, while future output, which is an indicator of firms’ growth expectations for the year ahead, also expanded.

“The boost in private sector activity was led by the manufacturing sector, as the larger services sector saw business activity deteriorate,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

“There is concern the impact of the pandemic will be prolonged further.”

Despite the activity improvements, manufacturers saw fallout from the pandemic which resulted in job shedding and a drop in output prices while input prices remained elevated, causing the widest gap between the two since December 2014.

The au Jibun Bank Flash Services PMI index was unchanged from the previous month’s final reading, coming in at 48.3 on a seasonally adjusted basis.

The au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, stood at 50.2 in March, expanding for the first time since January last year. (Reporting by Daniel Leussink; Editing by Kim Coghill)