Japan Services Sector Grows in June as Business Confidence Rises

Japan’s services sector expanded steadily in June, with business sentiment climbing to a four-month high, according to the final au Jibun Bank Services PMI data. The index rose to 51.7 from May’s 51.0, surpassing the flash estimate of 51.5 and signaling a third straight month of growth. A reading above 50.0 indicates expansion.

The uptick was supported by modestly stronger overall new orders, though growth in export orders—largely linked to tourism—slowed to its weakest pace since December. Despite the export dip, optimism among service providers improved, with many firms citing plans for expansion, new product offerings, and increased hiring.

Employment in the services sector saw its fastest growth since January, reflecting this improved outlook. Cost pressures eased slightly, with input price inflation falling to a six-month low. However, output price inflation hit a 14-month peak as businesses passed on higher costs for labor and energy to customers.

The positive momentum in services, combined with a return to growth in manufacturing, pushed the composite PMI to 51.5 in June from 50.2 in May—marking the strongest overall business activity since February.

Still, analysts remain cautious. Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, noted that while growth continued, momentum slowed in Q2 compared to Q1, hinting at a possible moderation in GDP growth. This follows a 0.2% annualized GDP contraction in the first quarter, driven by weak exports and sluggish domestic demand, even before the full impact of U.S. tariffs introduced by President Donald Trump took effect.

Lingering global trade uncertainty continues to weigh on market sentiment, despite domestic gains in services and manufacturing.