Japan’s PMI services activity hits 53.8 in May

Japan’s service sector continued to grow in May, with the final au Jibun Bank Service Purchasing Managers’ Index (PMI) slightly decreasing to 53.8 from 54.3 in April, Reuters reported on Wednesday citing recent data.

This indicates expansion, despite inflationary pressures raising expectations of a Bank of Japan (BOJ) interest rate hike. The final reading was higher than the initial estimate of 53.6, suggesting ongoing positive momentum.

The survey showed that new business growth continued in May, fuelled in part by a surge in tourism and the weakened yen.  In fact, the volume of new work received from overseas clients rose at the fastest rate since the survey began tracking this data in September 2014.

This positive development can be attributed to the yen’s depreciation, making Japan a more attractive destination for foreign tourists, and strong demand from other Asian economies.

However, the yen’s depreciation also contributed to rising input costs for service providers. While the rate of price increases eased slightly in May compared to April’s eight-month high, it remained significantly above average.

Survey respondents cited rising wages, higher fuel costs, and increased import expenses as key drivers of inflation.

These rising costs were passed on to customers in May, with the pace of price hikes for services nearly matching April’s reading, which was the third-highest ever recorded in the survey’s history.

The composite PMI, which combines manufacturing and service sector activity, also showed positive signs. The index rose to 52.6 in May, the joint-highest level since August 2023, up from 52.3 in April.