Japan’s Service Sector Sees Rapid 7-Month Growth Boost in Demand – PMI

The Japanese service sector has experienced its most rapid expansion in seven months as of March, primarily driven by a surge in demand, especially in inbound tourism. This growth in services has been a critical factor in Japan’s recent economic performance, helping to counterbalance the slower manufacturing sector affected by sluggish global demand.

March saw the final au Jibun Bank Service Purchasing Managers’ Index (PMI) climb to 54.1, up from February’s 52.9. This increase represents the 19th consecutive month of growth, as reported by S&P Global Market Intelligence. Although this figure is slightly below the preliminary reading of 54.9, it remains well above the 50.0 threshold, which distinguishes expansion from contraction.

The boost in the service sector is largely attributed to the strong performance in inbound tourism, leading to the most significant expansion in new business since August of the previous year. Alongside this, there was a marked increase in customer numbers and solid demand, contributing to a rise in business activities in March.

Additionally, new export business in the service sector has seen a growth for three straight months, thanks to an uptick in foreign tourism. The level of outstanding business, an indicator of future work, slightly decreased in March compared to the previous month, yet remained close to record highs. Businesses also displayed robust confidence regarding their prospects over the next 12 months.

Reflecting this optimism, the Bank of Japan’s tankan survey, released earlier in the week, indicated that confidence in Japan’s service sector reached a 33-year high in the first quarter, buoyed by the thriving tourism sector and increased profits stemming from price hikes.

On the cost front, input price inflation saw its quickest increase in five months during March, driven by higher expenses in labor, fuel, and utilities. Despite these rising costs, firms have managed to pass on these increases to consumers.

In broader economic terms, the composite PMI, which amalgamates manufacturing and service activity, rose to 51.7 in March from 50.6 in February, signaling a continued expansion across both sectors.