TOKYO (Reuters) – Activity in Japan’s services sector expanded at the fastest pace in nearly two years in August, a revised survey showed on Wednesday, a sign of domestic resilience despite mounting overseas pressures.
The final Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to 53.3 from 51.8 in July on a seasonally adjusted basis, marking the fastest growth since October 2017. The final gauge was slightly lower than the 53.4 reading released in the flash PMI on Aug. 22.
“Japan’s service sector shifted up a gear in August,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“This can be taken as a positive signal ahead of the consumption tax hike staged for October, suggesting that the resilience the domestic market has exhibited in 2019 so far has been sustained into Q3 (the third quarter).”
Japan’s government is preparing to raise the sales tax to 10% in October, the first such move since it raised the levy to 8% from 5% in April 2014.
Policymakers are hoping robust household consumption and business investment will hold up and be strong enough to offset a deepening export slump amid rising global trade protectionism and the U.S.-China tariff war.
Some policymakers, including Japanese Economy Minister Toshimitsu Motegi, have come out in recent days to say they see no sign of consumers front-loading their spending ahead of the planned sales tax hike.
Some individual components in the survey, however, were less encouraging and indicated momentum in the services sector may be slipping.
New business for Japanese service providers expanded, albeit at its slowest pace in over a year, while employment growth edged down to its slowest since February last year.
“There were signs to suggest caution, particularly in the forward-looking indicators,” IHS Markit’s Hayes said.
The composite PMI, which includes both manufacturing and services, soared to 51.9 from 50.6 in the previous month on the back of the stellar activity in the services sector.
But manufacturing survey data showed Monday external pressure remains, with factory activity declining for a fourth month in August amid flagging demand.
The contraction marked the longest run of decline since a six-month stretch from March to August 2016.
(Reporting by Daniel Leussink; Editing by Sam Holmes)