TOKYO, Aug 1 (Reuters) - - Japanese manufacturing activity shrank in July at a slower pace than the previous month but new export orders contracted the fastest in more than 3-1/2 years, a private survey showed on Monday, in an indication that recent yen gains are hurting exporters.
The IHS Markit/Nikkei Japan Final Manufacturing Purchasing Managers Index (PMI) rose to 49.3 in July, versus a preliminary 49.0 and a final reading of 48.1 in June.
But the headline index remained below the 50 threshold that separates contraction from expansion for the fifth month.
The sub-index for new export orders was 44.5. That compares with a preliminary reading of 44.0, but showed overseas demand fell at the fastest pace since December 2012.
Recent gains in the yen have raised concern among policymakers and business leaders, because this tends to weigh on exporters' earnings and make Japanese products less competitive overseas.
(Reporting by Stanley White; Editing by Kim Coghill)