Japan’s services sector expanded at a slower pace in September, while growth also came in slightly below market expectations. Weaker business activity and softer new orders offset stronger employment growth, according to the latest S&P Global Japan Services Purchasing Managers’ Index (PMI).
Japan Services PMI Falls Below Forecasts
The Services Business Activity Index declined to 51.3 in September, down from 52.5 in August. Economists had expected a reading of 51.6.
Despite the slowdown, the index remained above the key 50.0 level, which separates expansion from contraction. As a result, Japan’s services sector recorded growth for a fourth consecutive month.
The survey data were collected between September 8 and September 25.
New Order Growth Loses Momentum
Growth in new business also weakened during September. Companies reported softer-than-expected customer demand, while disruption linked to the Kumamoto earthquake also affected activity.
Domestic demand continued to support overall sales. However, new export business declined significantly, adding pressure to the sector’s growth momentum.
Employment Growth Accelerates
Employment remained one of the stronger areas of the report.
Service-sector payrolls increased for a 13th consecutive month, with the pace of job creation reaching its strongest level since February.
Companies increased hiring as outstanding workloads grew and businesses looked to expand operating capacity.
Inflation Pressures Remain Elevated
Cost pressures remained high, although the pace of input-cost inflation eased to a six-month low.
Service providers continued to report higher expenses for raw materials, wages, oil and food. At the same time, companies raised their selling prices again.
The increase in output prices remained among the strongest recorded in the history of the survey, highlighting continued inflationary pressure across Japan’s services sector.
Business Confidence Improves
Despite weaker activity growth, business sentiment strengthened in September.
Confidence regarding the next 12 months climbed to its highest level since June. Companies pointed to expectations of stronger customer demand, new product launches and further business diversification.
Firms also anticipated additional investment in capacity, supporting a more optimistic outlook for future activity.
Japan Composite PMI Also Slows
The weaker services reading contributed to slower growth across Japan’s broader private sector.
The S&P Global Japan Composite Output Index fell to 52.3 in September, compared with 53.5 in August.
This marked the slowest rate of expansion in four months. Nevertheless, overall private-sector activity increased for an 18th consecutive month.
Bank of Japan Rate Hike Remains in Focus
S&P Global noted that Japan continues to experience relatively solid economic growth alongside persistent inflation pressures.
This combination could strengthen the case for another Bank of Japan interest rate increase. According to S&P Global, a further rate hike could potentially come as early as the central bank’s October policy meeting.
