Japan Services Growth Hits Five-Month High in August, PMI Shows

Japan services growth picked up in August as stronger domestic demand helped service companies record their fastest expansion in five months. New business also continued to rise, pointing to firmer activity across the sector.

The final Japan Services Purchasing Managers’ Index (PMI) reported by S&P Global rose to 52.5 in August, up from 51.2 in July. A number above 50 suggests expansion, whereas a figure below 50 indicates contraction.

Japan Services Growth Strengthens on Domestic Demand

August marked the 26th consecutive month of growth in new business. The pace was faster than in July, thanks to consistent demand from Japanese customers.

However, overseas demand remained low. New export business declined for the fifth straight month, reaching its lowest level since November 2020.

The better local market boosted overall service activity, despite the fact that international orders continued to put pressure on the industry.

Hiring Rises, But Job Growth Slows

Service companies added jobs in August, marking the 12th consecutive month of job growth.

The rise, however, was quite minor. Job creation dropped to its worst rate in a year, indicating that firms were hesitant about extending their workforces despite an increase in activity.

According to S&P Global Market Intelligence Economics Associate Director Annabel Fiddes, the latest PMI statistics indicate that growth momentum in Japan’s services sector strengthened in August.

Cost Pressures Remain High

Businesses continued to endure rising costs, despite the fact that input price inflation fell to a four-month low. Despite the drop, cost pressures were among the highest seen in the last three and a half years.

Companies responded by boosting their pricing for customers. Output prices rose at the second-fastest rate on record, with businesses passing on some of their higher costs to customers.

According to Fiddes, ongoing cost pressures may drive official inflation higher in the coming months. She also stated that the combination of faster growth and persistent inflation could strengthen the case for another Bank of Japan interest rate hike.

Business Confidence Improves

Business confidence improved from July, however it remained low in comparison to recent levels.

The Composite PMI, which includes both manufacturing and services, showed a higher score. It increased to 53.5 in August from 52.7 in July, reaching its highest point in six months.

The August results revealed a greater increase in Japan’s private-sector activity, with services leading the recovery while export demand and employment growth remained weaker.