Japan Services Activity Expansion Revised Downward

Japan’s S&P Global Services PMI was at 50.0 in May 2026, aligning with the preliminary estimate and marking its lowest level since March 2025. The reading ended a 13-month run of expansion, pointing to stagnation in the services sector. Growth in new orders slowed to its weakest pace since the current cycle began near two years ago. Export orders fell at the fastest rate in more than four years, underscoring softer overseas appetite. Employment growth eased to a nine-month low, while backlogs of work rose modestly. Cost pressures mounted, with input prices increasing the most in 43 months, driven by higher fuel, energy, and raw material costs amid supplier hikes linked to Middle East tensions. Rising labor expenses added to the squeeze, prompting firms to raise selling prices at a near-record pace. Lastly, sentiment improved for a second month but stayed below post-pandemic norms, with companies citing geopolitical risks, elevated costs, and demographic headwinds from aging population.

Japan’s S&P Global Services PMI edged down to 50.0 in May 2026 from a final 51.0 in the previous month, flash estimates showed. The reading marked the weakest level since March 2025 and signaled a stagnation in services activity for the first time in more than a year, as softer demand weighed on the sector. Growth in new business eased notably, while overseas demand contracted amid lingering global uncertainty and supply-chain disruptions linked to the Middle East conflict. Outstanding business volumes continued to rise, though the pace of backlog accumulation remained softer than in the manufacturing sector. On the inflation front, firms continued to face strong cost pressures, although the burden was reported to be more severe among manufacturers than service providers. Higher operating expenses, nevertheless, prompted service firms to raise selling prices further in an effort to protect margins.

Japan’s S&P Global Services PMI was revised slightly lower to 51.0 in April 2026 from 51.2 in the flash reading and down from March’s final 53.4, signalling a thirteenth successive month of expansion. However, the latest reading remained the lowest figure since May 2025, as new orders grew at the slowest pace since last October, while foreign sales declined for the first time in five months, albeit modestly. Employment increased modestly, while backlogs of work rose at the slowest pace in 14 months. On the price front, input cost inflation accelerated to a 12-month high, mainly due to higher fuel prices. As a result, firms passed the higher costs on to their clients, with selling prices rising at the fastest pace since the survey began in September 2007. Looking ahead, business sentiment improved slightly amid ongoing uncertainty over the Middle East conflict and its impact on costs and customer demand.