Japan service sector growth weakens in September PMI data

Japan’s service sector saw a slower pace of growth in September, according to the latest Purchasing Managers’ Index (PMI) data. The S&P Global final Japan Services PMI dropped to 51.3 from August’s five-month high of 52.5, missing the flash estimate of 51.6. Any reading above 50 indicates expansion, but the decline suggests weakening momentum as the third quarter ended.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, noted that business activity and new orders grew at a slower rate. While new orders rose for the 27th consecutive month, the pace eased from the previous month. Domestic demand remained a key driver, but export business continued to decline, marking the second-sharpest drop since early 2021.

Employment levels increased for the 13th straight month, reaching the fastest pace since February. Companies also reported the highest rise in backlogs of work in seven months as they expanded capacity and filled job vacancies. Despite these gains, input cost inflation remained elevated due to higher raw materials, oil, labor, and food prices, though it eased to a six-month low.

The broader Composite PMI, which combines manufacturing and services, fell to 52.3 in September from 53.5 in August, the weakest reading since May. This mixed economic outlook was further highlighted by the Bank of Japan’s “tankan” survey, which showed manufacturers’ confidence hitting an eight-year high, while non-manufacturers’ sentiment worsened.