Manufacturing activity in Japan rebounded slightly in July from a six-year low the previous month, but a slowing economy and rising energy costs continued to hamper operating conditions, a survey showed on Thursday.
The Nomura/JMMA Japan Purchasing Managers Index (PMI), which gives an early snapshot of the health of manufacturing, rose to a seasonally adjusted 47.0 in July from 46.5 in June, which was the lowest since February 2002.
The index remained below 50, suggesting a contraction, for the fifth straight month on falling output and new orders.
"The Japanese manufacturing economy continued to suffer in the face of deteriorating domestic demand and rising cost pressures during the month," Paul Smith, senior economist at Markit, said in a report issued together with the survey.
The output index, which reflects industrial production, fell to 44.2 from 44.4 in June, also below 50 for five months in a row and the lowest reading since January 2002.
Reduced output reflected falling levels of incoming new orders and efforts to improve inventory management.
Government data showed on Wednesday that industrial output in April-June for the second straight quarter, the first such drop in seven years, suggesting that the nation's longest postwar growth cycle is fizzling out as high energy costs curtail business activity.
As costs of fuel and other oil items soared, the input prices index rose to a new series high of 78.5, the survey showed, pointing another month of considerable cost inflation led by higher raw material prices such as steel.
"Inflation showed little sign of abating, although the falls in world crude oil prices in recent days may provide some welcome respite for manufacturers next month," Smith added.
In June, Japan's core annual inflation hit a new decade-high while wholesale prices jumped 5.6 percent from a year earlier to hit a fresh 27-year high on surging oil and commodity prices, clouding the outlook for businesses.
The slowdown in the U.S. economy, a major destination for Japanese exports, remained a key source of demand weakness, but new export orders managed to rebound to 47.3 in July from 45.7 in the previous month partly thanks to firm sales to Southeast Asia.