Japan’s service activity extends gains, price pressures persist, PMI shows

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TOKYO (Reuters) – Japan’s service activity extended robust gains in May, a private sector survey showed on Wednesday, amid persistent inflationary pressures that have boosted expectations for another interest rate hike this year.

The final au Jibun Bank Service purchasing managers’ index (PMI) dipped to 53.8 last month from 54.3 in April.

The index has remained above the 50-mark that separates contraction from expansion since September 2022 and was better than the flash reading of 53.6.

“The Japanese service sector’s strong upturn was sustained in May, with growth rates for activity and new work easing only slightly,” said Trevor Balchin, economics director at S&P Global Market Intelligence.

Although the rate of increase slowed in May, new business kept growing, fuelled partly by tourism and the weak yen, the survey showed.

The volume of new work received from overseas rose at the fastest pace since the new export subindex was launched in September 2014, thanks to the yen’s depreciation and demand from other Asian economies.

The yen has fallen about 10% since the start of the year.

Meanwhile, the rate of input prices eased slightly in May from last month when it hit eight-month high, but hovered well above the average. The survey respondents cited rising wages and higher fuel and import cost, facilitated by the weak yen, for inflationary pressure.

Service providers passed increased costs for wages and materials on to customers in May, with the pace of price increases just below April’s reading, which was the third-highest in the history.

“With costs continuing to rise sharply but with demand for services growing solidly, firms were bullish on pricing,” Balchin at S&P Global Market Intelligence said.

The Bank of Japan, which ended negative interest rates in a landmark decision in March, is expected to hike rates again this year. The central bank has signalled a cautious approach to further tightening due to a fragile economic recovery.

The composite PMI, which combines the manufacturing and service activity figures, increased to 52.6 in May, the joint-highest level since August 2023, from 52.3 in April.

(Reporting by Satoshi Sugiyama; Editing by Sam Holmes)

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