Preliminary purchasing managers' index (PMI) data indicate that Japanese manufacturing activity contracted sharply in January, marking the seventh consecutive month of decline. Meanwhile, the services sector was reported to have expanded at a notable pace during the same period.

The au Jibun Bank manufacturing PMI declined to 48.8 in January from 49.6 in December, missing the forecasted 49.7. A reading below 50 shows contraction and January's numbers reflect the steepest deterioration in Japanese manufacturing conditions in ten months. Production levels declined at the fastest rate since last April, while new orders dropped at their quickest rate in six months.

Meanwhile, the services PMI by au Jibun Bank improved to 52.7 in January from 50.9 recorded in December as the sector showed solid expansion. This development allowed the au Jibun Bank to flash Japan composite PMI which combines manufacturing and services PMI readings, to increase to 51.1 in January from 50.5 a month earlier.

The data show that while pressure on manufacturing exists, the sector of services is pivotal in driving activity in the Japanese economy. However, these are contrasting trends that also point to weakness in the face of sectoral imbalances across Japan's economy.