Business conditions among Japan's manufacturing sector measured by a private sector survey were flat in January and stuck in negative territory after posting the first contraction in nearly two years in November as global growth is slowing and firms are passing higher costs on to customers.

The au Jibun Bank flash manufacturing purchasing managers' index (PMI) based on a survey conducted by S&P Global stood at a seasonally adjusted 48.9 in January (unrevised from the initial reading), unchanged from 48.9 in December, when it fell further from 49.0 in November and 50.7 in October. It compares with 50.8 in September, 51.5 in August, 52.1 in July, 52.7 in June, 53.3 in May, 53.5 in April and 54.1 in March. It remains the lowest since October 2020 and well below 55.4 recorded in January 2022, when the Omicron storm hadn't had a full impact on the economy and Russia hadn't invaded Ukraine yet.

The steady result came from slower cutbacks to production and a smaller decline in new orders. January data point to only a modest reduction in output levels across the Japanese manufacturing sector, which was the slowest since October 2022.

Slower exports led to the overall decline in new order intakes but the rate of contraction was the least in three months. Manufacturers cited rising demand from clients in Europe, but there were reports of falling sales to customers across Asia, especially Taiwan.

Thanks to easing supply chain bottlenecks, the degree of confidence about output in the next 12 months was the second-highest in 10 months.

Input cost inflation eased for the fourth month in a row, despite many reports citing higher prices for imported raw materials. This led to the slowest rise in factory gate charges since September 2021 as manufacturers sought to stimulate sales by limiting the pass through of higher costs to clients.

Data released Tuesday showed that Japan's industrial production was flat in December on cooling global demand, but down by a smaller-than-expected 0.1 percent after an upwardly revised slight gain in November and a slump in October, as lower output of general machines was partly offset by recovery in the auto sector.

The Ministry of Economy, Trade and Industry projected that output would be flat on the month in January and rise 4.1 percent in February based on its survey of manufacturers, but its conservative forecast for January is a 4.2 percent slump.

No major revision to the flash reading is expected.

Business conditions among Japan's manufacturing sector were flat in January and stuck in negative territory after posting the first contraction in nearly two years in November as global growth is slowing and firms are passing higher costs on to customers. The flash manufacturing purchasing managers' index (PMI) stood at a seasonally adjusted 48.9, unchanged from a final 48.9 in December, when it fell further from 49.0 in November and 50.7 in October.

The Purchasing Managers' Manufacturing Index (PMI) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.