The preliminary Markit/Nikkei manufacturing Purchasing Managers' Index (PMI) for Japan declined to 49.1 in March from 50.1 in February, missing expectations for a rise to 50.6. it was the lowest level since April 2015.
A reading below 50 indicates contraction of activity, a reading above 50 indicates expansion.
The index was driven by a drop in new orders and output.
"Operating conditions at Japanese manufacturers deteriorated in March. Production and new orders both contracted, with output decreasing for the first time in nearly a year. This suggests industrial production will continue to fall," economist at Markit, Amy Brownbill, said.