Japan's Services Growth Slows Amid Intense Cost Pressures

Japan's services sector growth slowed in July as demand weakened and cost pressures intensified. The S&P Global Japan Services Purchasing Managers' Index (PMI) fell to 51.2, down from 52.2 in June. This marked the second consecutive monthly expansion but at a much slower rate than earlier this year.

New business growth reached its lowest level in two years, and foreign demand for Japanese services declined for the fourth straight month. Cost pressures remained high, with input prices rising at a rate just below June's four-year high. Respondents cited inflation linked to the Middle East war, higher staff costs, and a weak yen as key drivers.

Service providers raised their selling prices at the fastest pace since April 2014, seeking to pass on higher costs to customers and protect margins. Backlogs of work increased at the slowest pace in 17 months, signaling easing capacity pressures. Employment growth and business confidence also decelerated from June.