Japan’s services sector lost momentum in September, with PMI Services falling from 52.5 to 51.3, while PMI Composite eased from 53.5 to 52.3. Services activity nevertheless expanded for a fourth straight month, while overall private-sector output grew for an eighteenth consecutive month. New business also increased at a slower pace, with domestic demand continuing to support sales even as services export orders fell markedly.
The underlying picture was firmer than the headline slowdown suggested. Services employment growth accelerated to the fastest pace since February, extending the hiring sequence to 13 months, while backlogs increased at the fastest rate in seven months. Firms linked stronger recruitment to rising customer demand and efforts to expand capacity. Business confidence also improved, reaching its highest level since June, suggesting service providers remained relatively upbeat despite the softer pace of activity growth.
Inflation pressures eased somewhat but remained historically elevated. Services input-cost inflation slowed to a six-month low, but costs still rose sharply, while output prices increased at one of the fastest rates in the survey’s history. S&P Global Economics Associate Director Annabel Fiddes said rapid increases in costs and selling prices, partly linked to the Middle East war and weak Yen, pointed to further upward pressure on CPI. Combined with still-firm growth, she said the data suggest the BoJ could raise rates again, potentially at its October meeting.
Data Summary
| Indicator | Sep | Aug |
|---|---|---|
| PMI Services | 51.3 | 52.5 |
| PMI Composite | 52.3 | 53.5 |
Key Takeaways
- Growth softened: PMI Services fell from 52.5 to 51.3, while PMI Composite declined from 53.5 to 52.3. Services still expanded for a fourth month and overall private-sector output for an eighteenth month.
- New orders slowed: Services new business increased at a softer and modest pace, with domestic demand providing support while export business continued to fall markedly.
- Hiring strengthened: Services employment rose at the fastest pace since February, extending the current hiring sequence to 13 months.
- Capacity pressure increased: Services backlogs rose at the fastest pace in seven months.
- Confidence improved: Services firms were the most optimistic since June about activity over the next 12 months.
- Inflation remained elevated: Input-cost inflation eased to a six-month low but was still sharp, while selling prices increased at one of the fastest rates in the survey’s history.
- BoJ implication: S&P Global said the combination of relatively firm growth and strong inflation pressures suggests the BoJ could raise rates again, potentially in October.
