Japan May factory activity shrinks most in over three years as orders slump: flash PMI

TOKYO (Reuters) - Japanese manufacturing activity contracted at the fastest pace in more than three years in May as new orders slumped, a preliminary survey showed on Monday, putting fresh pressure on the government and central bank to offer additional economic stimulus. The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 47.6 in May on a seasonally adjusted basis, from a final 48.2 in April. The index remained below the 50 threshold that separates contraction from expansion for the third month and showed that activity shrank at the fastest since December 2012. The index for new orders fell to a preliminary 44.1 from 45.0 in the previous month, also suggesting the fastest decline since December 2012. The aftermath of earthquakes in southern Japan in April may still be weighing heavily on some producers, a statement from Markit said, while foreign demand also contracted sharply. Japan escaped a technical recession in the first quarter, gross domestic product data showed last week, but economists warned the underlying trend for consumer spending remains weak. There are also concerns that companies have already started to delay business investment due to uncertainty about overseas economies. Speculation is growing that Prime Minister Shinzo Abe will delay a nationwide sales tax hike scheduled for next April to focus on measures that will strengthen domestic demand. Economists also expect the Bank of Japan will ease monetary policy even further by July as a strong yen and still-sluggish economy threaten its ability to meet its ambitious inflation target, a Reuters poll showed. (Reporting by Stanley White; Editing by Kim Coghill)