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Japan's business activity shrinks at sharpest rate in over 5 years

Japan's private sector business activity saw the sharpest contraction in more than 5.5 years in December 2019, as new order intakes remained stagnant, data compiled by Jibun Bank Corp. and IHS Markit showed.

The Jibun Bank Japan Composite Purchasing Managers' Index, which includes manufacturing and services activities, fell to 48.6 in December from 49.8 in November, marking the third consecutive month of contraction in business activity and summing up to the worst quarterly performance since the second quarter of 2016.

Backlogs dropped at the quickest pace since July 2016, while output charges declined for the first time in three years. Employment increased, while business outlook remained optimistic, the survey said.

The services sector contracted in December with the corresponding index falling to 49.4 after a brief respite as shown by the 50.3 reading in the previous month. The drop was the strongest in over three years.

Sales grew modestly amid slowed underlying demand conditions, while new businesses from overseas shrunk for the first time since June 2019.

Backlogs depleted at the strongest rate in more than 1.5 years, while the rate of job creation was the quickest in six months. Input costs grew in December due to higher fuel and labor expenses, while output charges reduced marginally for the first time since July 2017.

Manufacturing activity in Japan contracted for the eighth straight month in December 2019, with output volumes falling at the fastest rate since March 2019, the data showed.

Referring to the second half of 2019 in Japan's economy as a possible "cyclical lull," Joe Hayes, economist at IHS Markit, said the latest data "highlight that the impetus is back on [Japanese Prime Minister Shinzo] Abe and the Bank of Japan to look at ways to stimulate the domestic economy."