Japan's service activity growth softens in July - PMI

Japan's service sector activity expanded at a slightly slower pace in July as new business growth eased and cost pressures remained high, but the overall performance of the sector stayed solid amid the fading impact of COVID-19, a private-sector survey showed on Thursday.

The final au Jibun Bank Japan Services purchasing managers' index (PMI) slipped to a seasonally adjusted 53.8 last month from 54.0 in June. The pace of growth in July eased to the slowest since January.

That compared with the flash reading of 53.9 and remained well above the 50-threshold separating expansion from contraction for the 11th straight month. The index hit a record high in May.

"Growth in business activity continued to soften from the record highs seen earlier in the year, but remained solid overall," said Usamah Bhatti, an economist at S&P Global Market Intelligence.

Respondents of the survey cited some concern as new business growth slowed and outstanding business fell.

"Inflationary pressures, which are also impacted by the weak yen, remain a key downside risk to private sector activity and the Japanese economy as a whole," he said.

The subindex for new business grew at the slowest pace in six months with some firms saying the loss of national travel subsidies weighed on their sales. Outstanding business slipped below the 50.0 threshold for the first time since July last year partly on a fall in new contracts and economic uncertainty.

Cost pressure for service provider accelerated for the first time in three months in July amid reports of higher costs of fuel, electricity, materials and labour.

The subindex for employment fell for the first time since January as firms didn't replace voluntary leavers, particularly those who had retired.

On the positive ledger, foreign visitors continued supporting the services sector amid strong demand for travel and tourism from abroad following the end of COVID curbs a few months ago.

The composite PMI, which combines the manufacturing and services activity figures, stood at 52.2 in July from 52.1 in June, staying above the break-even 50 mark for the seventh straight month.