Japan's Service Sector Continues to Expand with Strong Export Demand

Tokyo, Japan – Japan's service industry maintained its growth momentum for a third consecutive month in January. Driven by a surge in new export business fueled by Asian demand, the sector showcased its resilience amidst challenges in other sectors of the economy.

The latest au Jibun Bank Service Purchasing Managers' Index (PMI) revealed a rise to 53.0 in January from 50.9 in December. This marks the highest level since September 2022. The reading exceeded the initial estimate of 52.7, indicating continued expansion in the sector.

"The strength of the services sector continues to contribute significantly to overall private sector growth," said Usamah Bhatti, economist at S&P Global Market Intelligence.

Firms expressed optimism about their business prospects, fueled by expectations of a recovery in manufacturing output and broader economic resurgence.

The services subindex for new business expanded for the seventh consecutive month in January, reaching its highest level since July 2022. This growth was attributed to new client acquisitions and store openings.

Export growth played a crucial role in boosting overall demand in January, with new export business expanding for the first time in four months to its strongest level since August 2022. Asian economies remained the primary driver of this growth.

Business expectations stayed positive in January, supported by new contract wins, expansion plans, and increased hiring. Employment continued to grow for the 16th consecutive month to meet expanding business needs.

However, rising wages, fuel, and raw material costs led to an increase in input prices during the month. Subsequently, firms passed on these rising costs, resulting in the highest output prices since May 2022.

The composite PMI, which combines manufacturing and service activity, rose to 51.1 in January, marking the highest expansion since September 2022.

The recent interest rate hike by the Bank of Japan, the highest in 17 years, has raised concerns about the potential for further rate increases and the risk of inflationary pressures.