Japan's manufacturing activity growth accelerated in December to its quickest pace since April as output and new orders saw faster expansions, flash estimates from IHS Markit and Nikkei showed.
The Nikkei manufacturing purchasing managers' index, or PMI, rose to 52.4 in December after falling to 52.2 in November.
"Preliminary PMI data shows that Japan's manufacturing sector closed 2018 with a strong finish," said Joe Hayes, economist at IHS Markit.
"The case for a year-end rebound in GDP looks strong based on PMI data thus far in [the fourth quarter]," he added.
Japan's economy contracted at a seasonally adjusted annual rate of 2.5% in the third quarter, the second preliminary estimate from the Cabinet Office showed Dec. 9.
Manufacturers hired at a slower rate in December, according to the PMI. They also saw a weaker rise in input prices, prompting them to hike output prices at a reduced pace.
Despite the PMI improvement, Hayes warned that the survey data signals caution. He cited export orders falling to the sharpest rate in more than two years, total demand rising only modestly and business confidence waning for the seventh straight month to the lowest level since October 2016.
"The prospects heading into 2019 ahead of the sales tax hike still appear skewed to the downside," Hayes said.