Japan's service sector, a recent driver of economic growth, contracted for the first time in nearly two years in June, according to a private sector survey released on Wednesday. The slowdown comes amid cooling domestic demand. The final au Jibun Bank Service Purchasing Managers' Index (PMI) fell to 49.4 in June, down from 53.8 in May. This marks the end of a 21-month streak of expansion for the sector, as reported by the S&P Global Market Intelligence survey. The PMI reading was even weaker than the initial estimate of 49.8, which itself was the first reading below the 50.0 threshold (separating expansion from contraction) since August 2022. However, analysts believe the decline in new business signifies a pause in growth rather than a significant drop in demand. "Looking beyond the headline figure, the picture is less concerning," said Trevor Balchin, economics director at S&P Global Market Intelligence. The survey showed varied results in different service industries. Consumer services, finance, insurance, and real estate experienced a decline in demand in June, while transport, storage, and information and communication sectors saw growth. The weak yen, which has depreciated over 12 per cent this year, also provided some support for Japanese services by boosting overseas demand. Despite the slowdown, employment growth and business confidence in the next 12 months remain positive, albeit at a slower pace. On the flip side, rising input costs pose a challenge. A combination of factors, including wage increases, food and fuel prices, and the weaker yen, have driven the fastest inflation for Japanese services since August 2023. Companies are responding to higher wages and material costs by passing on price hikes to consumers, with the pace of average prices charged showing only a slight decrease from record highs in April and May. The composite PMI, which combines data from both manufacturing and service sectors, dropped to 49.7 in June from 52.6 in May. This is the first time in seven months that the index has dipped below the 50.0 mark. Attribution: Reuters Download
