Japan's services sector grows despite global challenges

The services activity in Japan expanded further in August, a private sector survey showed on Wednesday, helped by overseas sales as it gained an edge despite the darkening global outlook.

The final au Jibun Bank Services Purchasing Managers' Index (PMI) came in at 53.7 last month, unchanged from the initial reading and above the 50.0 line, separating expansion from contraction for the second month in a row.

The headline figure was aligned with July's reading, but service companies saw a slowdown in new business growth compared to the previous month.

However, export sales rebounded from a contraction in July to the largest rise in three months, supporting overall service-sector business.

That contrasts sharply with Japan's August manufacturing PMI, released on Monday, which pointed to the weakest exports in five months due to weak demand in China, South Korea, and other major markets.

Recent data released by the government showed that Japan's export growth was below expectations in July, underlining growing risks of further deceleration due to a stronger yen and softer conditions.

Weak global demand is clouding the prospect for sustainable economic growth, while the Bank of Japan policy tightening has promised more rate hikes if the economy and inflation match up to its forecasts.

The August PMI data also showed service price inflation at its slowest in nine months. Service-sector employment growth and business optimism also hit seven- and 19-month lows, respectively.

The composite PMI rose to 52.9 in August from 52.5 the previous month, helped by a rebound in manufacturing output, the survey showed.

"Sustained service sector growth and a renewed expansion in manufacturing output contributed to a stronger improvement in the health of the Japanese private sector economy," which marked the fastest growth since May 2023, said economist Usamah Bhatti at the survey compiler S&P Global Market Intelligence.