Japan’s Service Sector Rebounds in April, Easing Economic Concerns

Japan's service sector returned to growth in April, marking a positive shift after stagnation in March, according to the latest au Jibun Bank Japan Services Purchasing Managers' Index (PMI). The PMI climbed to 52.4 from 50.0, surpassing the flash estimate of 52.2. A reading above 50 signals expansion, while below 50 indicates contraction.

The resurgence in services, driven by improved domestic demand and a rise in new business orders—the fastest since May 2023—stood in stark contrast to persistent weakness in manufacturing. Factory activity continued to shrink amid falling new orders, affected in part by global tariff uncertainties, especially from the U.S.

The composite PMI, which combines manufacturing and services, rose to 51.2 in April from 48.9 in March, moving into expansion territory for the first time in two months. However, despite rising activity, business sentiment among service providers dipped for the third month in a row, hitting its lowest level since January 2021. This suggests broader concerns among Japanese firms about global economic instability.

Employment in the service industry grew for the 19th consecutive month, with job creation hitting a three-month high. Businesses cited stronger customer demand and a need to expand operational capacity.

Meanwhile, input cost inflation surged to its highest level in over two years, fueled by rising prices for raw materials, energy, and labor. To protect profit margins, many companies passed on these costs to customers by raising output prices.

Japan’s April service sector growth offers a hopeful sign for the overall economy, though challenges remain in the manufacturing sector and global trade environment. These mixed signals highlight the delicate balance Japan faces amid shifting economic conditions.