Japan's Sept factory activity slips, PMI shows

TOKYO (Reuters) - Japan's factory activity eased in September due to softer production, although further expansion in the service sector supported overall business momentum, a survey showed on Tuesday.

The au Jibun Bank flash Japan manufacturing purchasing managers' index (PMI) fell to 49.6 in September from 49.8 in August.

The index stayed below the 50.0 threshold separating growth from contraction for a third straight month.

The subindex for output slipped marginally in September from August while that for new orders shrank at a softer pace.

The pace of inflation for both input and output prices eased, according to the survey.

Data earlier this month showed Japan's annual wholesale inflation slowed in August as the yen's rebound weighed on import costs.

Manufacturers' confidence for the outlook was subdued in September with the index for output prospects easing to its lowest since December 2022.

The Reuters Tankan, which closely tracks the Bank of Japan's quarterly business survey, showed this month that big Japanese manufacturers' morale sank to a seven-month low in September on soft Chinese demand.

The au Jibun Bank flash services PMI grew to 53.9 in September, the highest level in five months, from 53.7 in August. Average input prices grew at the softest pace since March but prices charged for Japanese services accelerated as firms passed higher costs on to customers, the survey showed.

"The expansion in business activity remained services-led in September," said Usamah Bhatti, economist at S&P Global Market Intelligence, which compiled the survey.

"Both manufacturing and services firms noted softer cost pressures, though average operating expenses remained historically elevated overall."

The au Jibun Bank flash Japan composite PMI, which combines both manufacturing and service sector activity, stood at 52.5 in September, the third straight month of expansion.

The Bank of Japan kept interest rates steady on Friday, as widely expected, after the central bank ended negative interest rates in March and hiked short-term rates to 0.25% in July.

(Reporting by Kaori Kaneko; Editing by Sam Holmes)