Japan's Services Sector Accelerates as Price Pressures Mount

The Japanese services sector experienced its third consecutive month of expansion in August, with the PMI Services index rising to 52.5 from 51.2 in July. This represents the strongest growth since March and marks a significant acceleration in the pace of expansion.

New orders also accelerated, driven mainly by firmer domestic demand, while employment increased at a slower pace than in previous months. Business confidence improved but remained relatively subdued.

However, price pressures were more striking, with services input costs continuing to rise sharply amid Middle East-related disruption and a weak yen. This prompted firms to lift output charges at the second-fastest pace since the survey began in 2007.

The composite PMI index, which includes both manufacturing and services data, also rose to 53.5 from 52.7 in July, representing the strongest growth since before the Middle East war began in February. S&P Global's Annabel Fiddes noted that stronger growth alongside price pressures 'strengthens the case for another Bank of Japan interest rate hike', reinforcing a hawkish policy backdrop ahead of the September meeting.