(Bloomberg) -- A key gauge of Japan’s manufacturing activity fell to the weakest in more than three years, sending a cautionary signal to the Bank of Japan as it mulls an exit from its ultra-stimulative policy settings.

The au Jibun Bank purchasing managers index for manufacturing sector activity slid to 47.2 in February, the lowest since August of 2020, and the ninth straight month in which the figure stayed below the boom-or-bust level of 50, S&P Global reported Thursday. The composite reading slid to 50.3, and services fell to 52.5.

The latest signs of weakness in the factory sector come after the economy unexpectedly slipped into recession at the end of 2023 due to flagging domestic demand, and as the outlook for external demand is shaky.

“Today’s data cannot dispel a sense of stagnation in the economy,” Kohei Okazaki, senior economist at Nomura Securities Co., said. “However, since there are many disturbing factors for manufacturing activity at the moment, we cannot yet conclude that the economy is weakening or will continue to decline.” 

Okazaki cited automobile production suspensions, the impact of China’s lunar new year holidays and disruptions to shipping in the Red Sea.

The Bank of Japan is watching every economic indicator for signs that a virtuous cycle linking wage gains to rising prices is taking root. Companies are in the midst of negotiating wage increases for next fiscal year with union representatives.

S&P Global said a steep decline in new orders led to production activity slowing sharply.

(Updates with economist’s comments)

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