Japanese Services Sector’s Contraction Eases, Outlook Improves

The services sector in Japan continues to register improvement, heading towards stabilizing after contracting sharply due to the coronavirus pandemic earlier this year. The final Jibun Bank Japan Services PMI increased to 47.7 in October from 46.9 in September – the highest reading in nine months, although it remained below the 50-threshold indicating contraction.

However, the reading continues to pick up, indicating that business conditions are getting better among services sector firms. The higher number for the overall PMI reading was driven by an improvement in the business outlook among companies in the sector, which rose to the highest level seen since January 2018.

Meanwhile, staffing numbers in the sector remained unchanged in October since the previous month even as employment levels stabilized. However, overall new business saw a slight contraction owing to weakness in demand, both domestic and external.

Economist at IHS Markit, Usamah Bhatti, notes, “October data indicated a slower decline in Japanese service sector business activity, amid a softer fall in new orders. Restrictions relating to the COVID-19 pandemic have continually eased over the course of recent months, allowing service providers to report gradual moves towards a recovery in domestic demand during October.”