TOKYO (Reuters) - Japanese manufacturing activity expanded at a steady pace in September, a revised survey showed on Monday, though export orders contracted and confidence about the outlook for production slumped to near two-year lows amid growing concern about global trade protectionism.
The final Markit/Nikkei survey for Japan showed the manufacturing Purchasing Managers' Index (PMI) was a seasonally adjusted 52.5 in September, down from a flash reading of 52.9 but unchanged from the previous month.
The index remained above the 50 threshold that separates expansion from contraction for the 25th consecutive month, but a slump in expectations for future output to a 22-month low underscored worries about global trade tensions.
"The average PMI reading for Q3 was notably weaker than those for the first and second quarters of 2018, suggesting weaker momentum," said Joe Hayes, economist at IHS Markit, which compiles the survey.
"Although firms remained optimistic overall that output levels would be higher in a year's time, the degree of confidence dipped to a 22-month low, with some panelists raising concern toward the demand outlook."
The sub-index measuring expectations for future output was revised up to 56.8 from a preliminary 55.9 but still showed sentiment was at its lowest since November 2016.
The index measuring export orders was revised down to 49.8 from a flash reading of 50.9 for the second consecutive month of contraction.
U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed last week to start trade talks in an arrangement that, for now, protects Japanese automakers from further tariffs, seen as a major threat to the export-dependent economy.
Still, there are lingering concerns that Japan will have to dramatically lower auto exports to the U.S. market and greatly increase the number of cars in makes in the United States to meet Trump's goal of creating more jobs and lowering the U.S. trade deficit.
Moreover, analysts worry an intensifying trade war between the United States and China - Japan's two biggest export markets - could drag on growth in the world's third biggest economy.