Japan's Service Sector Growth Cools Amid Steepest Price Increases Since 2014

Japan's services sector expansion cooled in July as firms pushed through their steepest price increases in over a decade. According to S&P Global, Japan's Services Purchasing Managers' Index (PMI) fell to 51.2 in July from 52.2 in June, still above the 50 threshold that signals expansion but indicating slower growth.

The report showed new orders softened and overseas demand fell for a fourth month, while companies reported rising costs from labor, imported inputs, and a weak yen, leading to selling prices rising at their fastest pace since April 2014. Backlogs, hiring, and confidence all eased, suggesting firms are less sure about maintaining demand with higher prices.

This mixed picture presents an awkward situation for the Bank of Japan, which must balance cooler activity with stubborn service-sector inflation tied to wages and rents. Annabel Fiddes, an economist at S&P Global, noted that this could lift official inflation and add pressure for further policy rate increases in coming months.