Japanese business activity shrank for the first time in five months in March, preliminary purchasing managers index data showed on Monday, as sticky local inflation and soft overseas manufacturing demand weighed. 

The au Jibun Bank manufacturing PMI fell to 48.3 in March from 49.0 in February, shrinking for a ninth consecutive month. The reading was also weaker than expectations of 49.2. 

A PMI print below 50 entails contraction.

The drop in manufacturing was driven chiefly by softer overseas demand for goods, which weighed on new work orders. This came as markets fretted over the economic impact of more trade tariffs under U.S. President Donald Trump.

Trump is set to unveil plans for reciprocal trade tariffs on April 2. 

Japanese services activity shrank for the first time since mid-2024, with the au Jibun Bank services PMI falling to 49.5 in March from 53.7 in the prior month.

The decline in services activity was driven by waning demand in the face of heightened concerns over growing costs, especially as Japanese inflation remained strong and above the Bank of Japan’s target. 

Higher inflation also pressured services demand in March, especially as average input costs rose sharply. 

The declines in manufacturing and services activity saw the overall composite PMI fall to 48.5 in March from 52.0 in Feb- its first decline in five months. 

The PMI data reflected some cooling in the Japanese economy, especially as private spending comes off last year’s highs. Rising domestic interest rates and sticky inflation have also weighed on business activity, as did uncertainty over U.S. trade policies.