Japan Services Growth Slows Slightly

Japan’s S&P Global Services PMI Business Activity Index eased to 51.9 in July 2026 from a final 52.2 in the previous month, flash estimates showed. Despite the slowdown, the reading marked the 16th consecutive month of expansion in the services sector. Growth in new business moderated to a mild pace, while employment increased more slowly and foreign demand declined again. On the price front, input cost inflation eased further, but firms raised output charges at the fastest pace in more than 12 years, reflecting continued efforts to pass higher costs on to customers. Looking ahead, business confidence weakened amid persistent uncertainty surrounding the war in the Middle East, particularly its impact on energy and raw material prices, as well as ongoing supply chain disruptions.

Japan’s S&P Global Services PMI Business Activity Index stood at 52.2 in June 2026, higher than the flash data of 51.8 and 50.0 in the prior month. The latest reading marked the 14th expansion in the past 15 months, although the pace of growth remained modest and slightly below the average over the past year. New business rose at one of the fastest rates in nearly two years, driven by stronger domestic demand, even as export orders fell sharply. Firms expanded hiring, with employment growth accelerating, while backlogs increased at the quickest pace since March, underscoring capacity pressures. Input cost inflation surged to a four-year high on higher oil, energy, food, and labor costs, yet selling price hikes slowed compared with May, hinting at softer pass-through. Finally, business confidence stayed subdued, among the weakest since the pandemic, as companies flagged uncertainty from Middle East tensions, persistent cost burdens, and labor shortages as key risks to the outlook.

Japan’s S&P Global Flash Services PMI Business Activity Index rose to 51.8 in June 2026 from 50.0 in the previous month, flash estimates showed. The reading signaled a renewed expansion in the services sector after activity stagnated in the previous month, supported by stronger demand conditions, with service providers reporting a firmer increase in new business. Rising workloads led to a further accumulation of outstanding business, encouraging firms to increase staffing levels. However, despite the improvement in domestic demand, foreign sales remained under pressure, as service firms continued to report a marked decline in export business. At the same time, elevated cost pressures persisted, prompting businesses to pass higher expenses on to clients through further price increases. Looking ahead, optimism softened, with firms citing concerns over inflation, labor shortages, and supply-chain disruptions linked to the Middle East conflict.