Japan’s service sector maintained its expansion in August, with activity bolstered by a rise in overseas sales, according to the latest survey data. The au Jibun Bank Service purchasing managers’ index (PMI) remained unchanged at 53.7, marking the second consecutive month of growth. A reading above 50 signals expansion in the sector, reflecting continued momentum despite a challenging global economic backdrop.
While the headline figure matched July’s reading, there were signs of a slowdown in new business growth. This deceleration was offset by a rebound in export sales, which saw their strongest increase in three months after a brief contraction in July. This helped keep the overall service sector activity in positive territory, highlighting the sector’s resilience compared to Japan’s manufacturing sector, which has been more affected by weakening demand in key markets such as China and South Korea.
Japan’s broader export performance in July had already raised concerns, with government data showing export growth missing expectations. External pressures, including a stronger yen and softening global demand, pose risks to the country’s economic outlook, particularly as the Bank of Japan considers policy tightening to manage inflation and sustain economic growth.
In addition to the export-driven recovery in services, the August data pointed to the slowest rate of service price inflation in nine months, offering a potential reprieve for consumers. However, service sector employment and business optimism both hit multi-month lows, reflecting uncertainty about future growth prospects.
Despite these challenges, the composite PMI, which combines both the manufacturing and services sectors, rose to 52.9 in August from 52.5 in July. This improvement was supported by a modest recovery in manufacturing output, which had struggled in recent months.
Economist Usamah Bhatti from S&P Global Market Intelligence noted that sustained service sector growth, along with renewed strength in manufacturing, contributed to the fastest overall improvement in Japan’s private sector since May 2023. Still, the outlook remains cautious amid growing global economic headwinds.
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