Japan's manufacturing activity remained in contractionary territory in March, as output volumes declined at the sharpest pace in almost three years, data from IHS Markit and Nikkei showed.

The Nikkei flash manufacturing purchasing managers' index was unchanged month over month at 48.9 in March. A reading above 50 indicates expansion, while a reading below that points to contraction.

Production fell at a faster rate in March amid depressed demand from domestic and international markets.

Employment increased at a faster rate in March, while backlogs of work in the manufacturing sector decreased.

Business confidence remained below its historical average in March amid concerns of weaker growth in China and prolonged global trade frictions, according to Joe Hayes, economist at IHS Markit.

"With input purchasing falling, firms appear to be anticipating further troubles in the short term," Hayes.

Final March data will be published April 1.