Mubasher: Japanese factory business shrank at the fastest pace since seven months in September, as pressure mounted on the economy, amid weakening global demand and sluggish growth, according to revised business survey results.

On a seasonally adjusted basis, the Jibun Bank’s manufacturing purchasing managers’ index (PMI) dropped to 48.9 in September from 49.3 in August.

For the fifth month in a row, the index remained in a contractionary territory, extending the lengthiest streak of contraction since a six-month stretch from March to August 2016.

While the final reading matched the preliminary one, it marked the fastest pace of a decline seen since last February.

Activity at Japanese factories softened against the backdrop of flagging output and new orders, as both of which continued to drop for the ninth consecutive month.

Underlying demand faltered, reflecting lower domestic and foreign sales, with order book volumes dropping in China, the US and Europe.

“Crucially, the stronger deterioration comes ahead of the consumption tax hike, and suggests that manufacturing and exports are both likely to have been drags on third quarter GDP,” IHS Markit economist Joe Hayes said.

The sales tax hike to 10% from 8% took effect on Tuesday, the first increase since April 2014.

However, a separate Monday report on retail sales showed a growth of 2% last August, suggesting that domestic demand might still be stronger than thought.

“The service sector’s ability to weather the sales tax hike in the fourth quarter will be crucial to keeping the economy afloat into the year-end,” IHS Markit’s Hayes noted.

At 8:04 am GMT, the Japanese yen (JPY) fell against the US dollar, with the USD/JPY pair rising by 0.25% to JPY 108.3500.