Japan’s service sector growth slowed notably in April as the impact of the Middle East conflict weighed on demand and business confidence, while sharply higher costs pushed inflation pressures to near-record levels. PMI Services was finalized at 51.0, down from 53.4 in March, while PMI Composite eased to 52.2 from 53.0, pointing to softer overall private-sector momentum after a strong start to 2026.
The slowdown was concentrated in the services sector, where business activity growth weakened to an 11-month low amid a softer rise in new orders. According to S&P Global, overseas demand for Japanese services also declined again, adding further pressure to momentum. In contrast, manufacturers reported the fastest increase in output in more than 12 years, partly reflecting front-loading activity linked to disruptions and uncertainty caused by the Middle East war.
At the same time, inflation pressures accelerated sharply across the economy. Input costs rose at the fastest pace in three-and-a-half years as higher energy and commodity prices fed through supply chains. Firms responded by raising selling prices at the steepest pace in nearly two decades of data collection, reinforcing concerns that official inflation could accelerate further in coming months.
Business sentiment also deteriorated noticeably. Companies cited ongoing uncertainty surrounding the Middle East conflict, rising costs, and concerns about weaker customer demand. Optimism for the year ahead fell to its lowest level since the COVID-19 pandemic in August 2020, highlighting growing anxiety that Japan may face a more difficult balance between slowing growth and rising inflation pressures later this year.
| Indicator | March | April Final |
|---|---|---|
| PMI Services | 53.4 | 51.0 |
| PMI Composite | 53.0 | 52.2 |
| Indicator | Details |
|---|---|
| Input Costs | Fastest increase in 3.5 years |
| Selling Prices | Steepest rise in nearly 20 years |
| Main Driver | Higher energy and commodity prices |
