Japan service activity growth slows down in September: PMI

Japan's service activity in September expanded for the 13th month but at the slowest pace since the start of the year, a private survey showed, a worrying sign as the sector has been a key driver of economic growth amid weakness in manufacturing.

The final au Jibun Bank Japan Service purchasing managers' index (PMI) fell to 53.8 in September from 54.3 in August, hurt by slower new business and a stalling in export orders.

The index level marked the joint-lowest since January, according to the survey compiled by S&P Global and released on Wednesday. It was slightly above the flash reading of 53.3 and remained over the 50.0 threshold separating expansion from contraction since August last year.

However, there were broad signs of softening in the service industry, which has underpinned the world's third-biggest economy over recent quarters amid weak global demand for its manufactured goods.

New export orders stalled, ending a 12 consecutive months expansion. A boom in inbound tourism was offset by persistent weakness in the yen, the survey showed.

"Capacity pressures were also dampened in September as backlogs rose only fractionally, while firms also saw the sharpest fall in service sector employment since January 2022," said Usamah Bhatti, economist at S&P Global.

While the services sector expansion remained solid overall, the pockets of weakness last month underlines the challenge for policymakers counting on domestic demand to spur an economic recovery.

Firms reporting a decrease in their workforce attributed it to not replacing those leaving voluntarily.

The industry faced pressure from rising fuel, utilities and labour costs in September, but the rate of input price inflation eased compared to August.

Service providers remained optimistic about their business activity for the coming 12 months, but again the degree of confidence was the lowest in eight months, with some citing inflation and high interest rates as concerns.

The composite PMI, which combines the manufacturing and service activity figures, fell to 52.1 in September from 52.6 in August, staying above the break-even 50 mark for nine consecutive month.