Japan's manufacturing sector moved deeper into contraction in October largely due to a sharp fall in new orders, survey data from IHS Markit showed Friday.
The Jibun Bank Purchasing Managers' Index dropped to 48.4 in October from 48.9 in September. The flash reading was 48.5.
The reading reached its lowest level in nearly three-and-a-half years. A score below 50 indicates contraction.
The fall in sales was partly reflective of the end of last-minute purchases before the sales tax hike, which took effect in October. Total new orders fell the most since May 2016.
With decrease in new work, manufacturers reduced their production. Nonetheless, employment levels increased at the fastest pace in six months.
On the price front, input price inflation remained close to the level seen in September, which was the weakest for almost three years. Firms took advantage of the low cost inflation environment and discounted charges so as to boost sales.
"Although the impact of the typhoon will have temporarily interrupted factory operations in October, panellists reported unfavourable underlying conditions across both domestic and external markets," Joe Hayes, an economist at IHS Markit, said. As such, downside risks to Japan's manufacturing economy are clearly excessive, Hayes added.