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Japan services growth slows in July amid cost pressures, PMI shows
🇸🇬 Singapore /Economy & Trade

Japan services growth slows in July amid cost pressures, PMI shows

From CNA · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Japan's services sector growth slowed in July due to weakening demand and high cost pressures.
  • The Services PMI fell to 51.2, with new business growth hitting a two-year low and foreign demand declining.
  • Rising input and selling prices, driven by inflation and a weak yen, are pressuring businesses and could influence the Bank of Japan's policy rate.

Japan's services sector experienced a slowdown in July, with the S&P Global final Services Purchasing Managers' Index (PMI) dropping to 51.2 from 52.2 in June. This marks a continued, albeit slower, expansion after a second consecutive month above the 50.0 growth threshold. The deceleration was driven by weakening demand, with new business growth reaching its lowest point in two years. Foreign demand for Japanese services also continued its decline for the fourth month, though at a slightly eased rate.

Firms faced persistent cost pressures, with input prices rising nearly as fast as they did in June, which was a four-year high. Respondents attributed these increases to a strong inflationary environment, exacerbated by the war in the Middle East, higher staff costs, and a weak yen. Consequently, service providers increased their selling prices at the fastest pace since April 2014, aiming to pass on these elevated costs to customers and protect their profit margins.

With rates of cost inflation remaining rapid across both manufacturing and service sectors, there was further pressure on firms to raise their own prices in order to protect margins.

— Annabel FiddesAnnabel Fiddes, economics associate director at S&P Global Market Intelligence, commented on the cost pressures faced by businesses.

Capacity pressures appeared to be easing, as backlogs of work grew at the slowest pace in 17 months. Both employment growth and business confidence also saw a deceleration compared to June. The broader Composite PMI, which combines manufacturing and services, remained stable at 52.7, as robust manufacturing output compensated for the slowdown in the services sector.

"With rates of cost inflation remaining rapid across both manufacturing and service sectors, there was further pressure on firms to raise their own prices in order to protect margins," noted Annabel Fiddes, economics associate director at S&P Global Market Intelligence. She added that "Official inflation measures could move higher and add pressure on the Bank of Japan to raise the policy rate in the coming months."

Official inflation measures could move higher and add pressure on the Bank of Japan to raise the policy rate in the coming months.

— Annabel FiddesAnnabel Fiddes, economics associate director at S&P Global Market Intelligence, suggested potential implications for the Bank of Japan's monetary policy.
DistantNews Editorial

Originally published by CNA in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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