June 1, 2016 / 2:16 AM / 3 years ago

Japan May factory activity shrinks at fastest pace in over three years - PMI

Flames shoot out of a chimney at a petrochemical plant at the Keihin industrial zone in Kawasaki, Japan, March 28, 2016. Picture taken March 28, 2016. REUTERS/Yuya Shino

TOKYO, June 1 (Reuters) - Japanese manufacturing activity contracted at the fastest pace in more than three years in May as new orders slumped, a private survey showed on Wednesday, highlighting renewed weakness in the economy and adding pressure on the government and central bank.

The Markit/Nikkei Final Japan Manufacturing Purchasing Managers Index (PMI) fell to 47.7 in May on a seasonally adjusted basis, which was slightly above a preliminary reading of 47.6 but below a final 48.2 in April.

The index remained below the 50 threshold that separates contraction from expansion for the third month and showed that activity shrank at the fastest pace since January 2013.

The aftermath of earthquakes in southern Japan in April may still be weighing heavily on some producers, a statement from Markit said, but it noted foreign demand also contracted sharply.

The index for new orders fell to 44.7, which was revised up from a preliminary 44.1 but still showed the fastest decline since December 2012. In April the index for new orders was 45.0.

Export orders also fell at a faster pace than in April. Some of the respondents to the survey mentioned the impact of a stronger yen and tougher international competition.

Japanese Prime Minister Shinzo Abe is expected to announce a delay to next year’s proposed sales tax hike to prevent a further blow to the economy, when he speaks to members of the media on Wednesday.

Some economists say such a decision would be an indication that three years of Abe’s reflationary policies have failed to fundamentally strengthen the economy and shift growth into a higher gear.

Reporting by Stanley White; Editing by Kim Coghill; stanley.white@thomsonreuters.com; +81 3 6441 1984 twitter.com/stanleywhite1; Reuters Messaging: stanley.white.reuters.com@reuters.net

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