Japan services PMI crosses 50-point threshold mark in October on sharp expansion in new orders

Services sector activity growth in Japan increased marginally at the start of the final quarter of 2016, supported by the sharpest expansion in new orders since February. Despite this, services firms cut back on their staffing numbers for the fifth month running, although at only a slight rate.

The seasonally adjusted Business Activity Index posted at 50.5 in October, up from 48.2 in September, signalling an expansion in output at Japanese service providers. Further, the overall Nikkei Composite Output Index posted above the 50.0 no-change mark for the first time in three months (51.3). Moreover, the latest reading was the sharpest since January.

Contributing to the expansion in activity was an increase in new orders at Japanese services firms. In fact, total new work rose at the sharpest rate since February. Some surveyed respondents mentioned improved advertising and the opening of new stores helping to boost demand.

Cost inflationary pressures in the service sector intensified to the strongest rate in eight months. Greater cost burdens were attributed by panelists to higher raw material prices. Finally, business sentiment at Japanese services companies strengthened to the strongest since April.

Meanwhile, expectations of greater demand stemming from preparations in hosting the 2020 Tokyo Olympic Games, the launching of new products and the opening of new businesses were all cited as factors behind the confidence.

"The PMI data and IHS Markit’s GDP forecast of 0.9% y/y in Q4 (the highest reading since Q3 2015) both suggest the short-term outlook for the economy looks bright," said Amy Brownbill, Economist, IHS Markit.