TOKYO (Reuters) - Japan's factory activity shrank at a slower pace in March, while further expansion in the service sector supported overall growth in the private sector, a business survey showed on Thursday.
The data comes after the Bank of Japan made a historic policy shift this week by ending radical stimulus and raising interest rates for the first time in 17 years.
The flash au Jibun Bank Japan manufacturing purchasing managers' index (PMI) rose to 48.2 in March from 47.2 in February.
While the index has remained below the 50 index level that separates growth from contraction since June, the pace of deterioration was the softest in four months.
"Manufacturers saw a sustained, albeit softer decline in production," said Usamah Bhatti at S&P Global Market Intelligence, which compiled the survey.
Deterioration in the subindexes of output and new orders eased in March. Sustained falls in new orders and gains in employment suggest spare capacity in the sector and the backlog of work dropped to the lowest level since August 2020.
Service providers maintained a brisk pace of expansion, growing activity at the fastest pace in 10 months.
"Demand conditions at private sector firms improved further in March," Bhatti said.
The au Jibun Bank flash services PMI rose to 54.9 in March, the highest since last May, from 52.9 in February. The subindex of incoming business also accelerated to reach the highest in nine months.
However, the survey showed renewed price pressures on the private sector, with input cost inflation strengthening to the highest since last September.
While price pressures also remained high in the manufacturing sector, the pace of increases were the softest in eight months.
The au Jibun Bank flash Japan composite PMI, which combines both manufacturing and service sector activity, rose to 52.3 in March, the highest level since last August.