Japan services activity extends expansion in October as PMI rises

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Japan services PMI expansion

Highlights

Japan Services PMI rises to 51.7 in October from 51.3 in September, marking fifth consecutive expansion month despite falling short of the 52.0 flash estimate.
Input price inflation eases to an eight-month low for the fourth consecutive month, but firms continue raising output charges every month for four and a half years.
Business confidence drops to its lowest since March as inflation, ageing demographics, and labor shortages weigh on outlook, limiting job creation to the weakest pace in 14 months.

October survey signals steady services growth

As reported by Reuters, citing S&P Global, the final Japan Services Purchasing Managers' Index rises to 51.7 in October from 51.3 in September, marking a fifth straight month of expansion, although it remains below the flash reading of 52.0. A reading above 50 indicates growth.

New orders increase for a 28th straight month, with firms citing firmer domestic demand, new clients and business development efforts. Foreign demand remains weak, though the decline in new export orders eases to its slowest pace since April.

Japan's composite output index slips to 52.1 from 52.3, its softest growth pace since May, as stronger services activity is partly offset by a slowdown in manufacturing output.

Cost trends and confidence shape policy outlook

Input price inflation decelerates for a fourth straight month to an eight-month low, while output price inflation also moderates. Even so, companies continue to raise charges every month for the past four and a half years.

Business confidence weakens to its lowest level since March as concerns over inflation, an ageing population and labour shortages temper optimism about growth in the defence and technology sectors, business expansion plans and increased tourism. Annabel Fiddes, economics associate director at S&P Global Market Intelligence, says persistent inflation could constrain demand and hiring in the months ahead and that growth momentum and easing cost pressures will be important for the Bank of Japan as it weighs further tightening.

Employment rises only marginally, marking the weakest pace of job creation in the current 14-month hiring stretch. Companies cite expansion plans for staff additions, while resignations and retirements limit overall headcount growth.

UBS Global Wealth Management’s outlook on a longer Federal Reserve tightening cycle highlighted how persistent inflation could keep U.S. rates higher for longer. Our publication previously noted that UBS expects additional Fed hikes into 2027, arguing that firm goods and services inflation and overlapping risks could require a more restrictive policy stance to anchor inflation expectations.

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