Japan’s services boom fuels rate hike bets

Japan’s service sector surged in April, marking the fastest growth in eight months, fuelled by robust business and consumer spending, according to a private survey released on Tuesday.

This strong performance strengthens expectations that the Bank of Japan (BOJ) will raise interest rates again this year, Reuters reported.

The final au Jibun Bank Service Purchasing Managers’ Index (PMI) reached 54.3 in April, its highest level since August 2023 and a slight increase from March’s 54.1.

The index, remaining above 50 for the seventh consecutive month, dipped marginally from the preliminary reading of 54.6.

However, the survey revealed a significant rise in prices charged by service providers, reaching their highest level since April 2014, coinciding with a sales tax increase.

Firms cited growing expenses, particularly higher wages, as the primary reason for passing on these costs, a factor the BOJ has been actively encouraging to stimulate consumption.

The BOJ’s historic decision to end negative interest rates in March fuelled speculation of further rate hikes in 2024.

While the central bank maintains a cautious approach due to the fragile economic recovery, the service sector’s resilience provides a welcome boost, offsetting weaknesses in manufacturing.