Japan Service Sector Growth Slows in September Amid Earthquake Impact

Japan's service sector saw slower growth in September, expanding at its weakest pace in four months. The S&P Global Japan Services Purchasing Managers' Index (PMI) dropped to 51.3 from 52.5 in August, missing economists' expectations of 51.6. A reading above 50 indicates expansion, but the decline suggests softer demand and disruption from the Kumamoto earthquake.

New orders rose for the 27th straight month but at a slower pace. Domestic demand supported sales, while new export business declined sharply. Survey respondents cited weaker-than-expected client demand and earthquake-related disruptions as key factors. Employment, however, remained a bright spot, increasing for the 13th consecutive month at the fastest pace since February.

Inflationary pressures persisted despite a slight easing in input cost growth. Firms reported higher expenses for raw materials, oil, labor, and food, though the rate of increase in output prices softened from August. Business confidence improved, reaching its highest level since June, with firms expecting stronger client demand and new product launches.

The broader Composite Output Index, combining manufacturing and services, fell to 52.3 from 53.5 in August. This marks the slowest expansion in four months, though activity has risen for 18 consecutive months. The data arrives as the Bank of Japan considers its next policy move, with persistent inflation and growth potentially supporting another rate hike at its October meeting.