Japan's Services Sector Growth Eases in July Amid Weakening Demand, PMI Data Shows

Growth in Japan's services sector slowed in July as demand softened and companies contended with elevated cost pressures, according to a private survey. The final S&P Global Japan Services Purchasing Managers’ Index (PMI) registered 51.2, a decline from June's reading of 52.2 and below the preliminary estimate of 51.9.

A Closer Look at the Data

While the index remained above the 50.0 mark that separates expansion from contraction, the July figure indicates the slowest pace of growth in several months. The slowdown in the services industry was largely offset by a surge in factory activity.

The Composite PMI, which blends data from both the services and manufacturing sectors, was largely stable at 52.7 in July, compared to 52.8 in the prior month, pointing to resilient overall business activity.

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Demand Falters as Costs Climb

The survey highlighted several signs of weakening demand. Growth in new business fell to its lowest level in two years, and foreign demand for Japanese services contracted for the fourth consecutive month, though the pace of decline eased slightly from May and June.

At the same time, businesses faced significant cost pressures. Input prices rose at a rate just below the four-year high recorded in June. Survey respondents cited a weak yen, higher staffing costs, and geopolitical factors such as the war in the Middle East as key drivers of inflation. To protect margins, service providers passed these higher costs on to customers, raising their selling prices at the fastest pace since April 2014, when a national consumption tax was increased.