Japan’s services sector strengthened in August, with PMI Services rising from 51.2 in July to 52.5, marking a third straight month of expansion and strongest growth since March. New orders also accelerated from July’s 25-month low, driven mainly by firmer domestic demand, while employment increased only marginally and at slowest pace in a year. Business confidence improved from July but remained relatively subdued by recent standards.
Price pressures were more striking. Services input costs continued to rise sharply amid Middle East-related disruption and weak Yen, prompting firms to lift output charges at second-fastest pace since survey began in 2007, behind only April 2014’s consumption-tax increase. At composite level, selling prices rose at fastest rate on record, even as input-cost inflation eased to lowest since March. S&P Global’s Annabel Fiddes said cost pressures remained “a key area of concern” and noted that sustained price increases indicate official inflation could rise further.
Broader private-sector growth also accelerated, with PMI Composite rising from 52.7 to 53.5, strongest since before Middle East war began in February. Manufacturing continued to lead expansion, while services momentum improved and composite new business rose at one of fastest rates seen over past three years. Fiddes said stronger growth alongside price pressures “strengthens the case for another Bank of Japan interest rate hike,” reinforcing already-hawkish policy backdrop ahead of September meeting.
Data Summary
| Indicator | August | July | Trend |
|---|---|---|---|
| PMI Services | 52.5 | 51.2 | Growth accelerated |
| PMI Composite | 53.5 | 52.7 | Growth accelerated |
Components
| Component | Trend |
|---|---|
| Services business activity | Strongest growth since March |
| Services new orders | Accelerated from July’s 25-month low |
| Services new export orders | Fell sharply |
| Services employment | Rose at slowest pace in a year |
| Services backlogs | Increased slightly |
| Services business confidence | Improved from July but remained relatively subdued |
| Services input costs | Rose sharply, though slightly slower than July |
| Services output prices | Second-fastest increase on record |
| Composite output | Fastest expansion in six months |
| Composite new business | Accelerated to one of fastest rates in past three years |
| Composite employment | Increased modestly |
| Composite selling prices | Fastest increase on record |
Key Takeaways
- Japan PMI Services rose from 51.2 to 52.5, marking third consecutive month of expansion and strongest growth since March.
- PMI Composite increased from 52.7 to 53.5, extending private-sector expansion to 17 months and delivering strongest output growth in six months.
- Services new orders strengthened noticeably, driven mainly by domestic demand, while new export business continued to decline sharply.
- Hiring remained cautious despite stronger activity, with services employment increasing at slowest pace in a year.
- Cost pressures stayed substantial, linked partly to Middle East disruption and weak Yen.
- Services selling prices rose at second-fastest rate since survey began, while composite selling-price inflation reached a record high.
- S&P Global’s Annabel Fiddes said combination of stronger growth and price pressures “strengthens the case for another Bank of Japan interest rate hike.”
