Japan’s service business is expanding on solid demand, PMI shows

TOKYO (Reuters) – Japan’s service activity expanded for a second straight month in December, supported by solid demand and business expansion, a private sector survey showed on Monday.

The final purchasing managers’ index (PMI) of au Jibun Bank Service rose to 50.9 in December from 50.5 in November, according to the survey compiled by S&P Global Market Intelligence.

It was lower than a flash reading of 51.4 but remained above the 50.0 threshold that separates expansion from contraction for a second straight month.

“December data revealed a positive month for the Japanese service sector, with sustained increases in both business activity and new business,” said Usamah Bhatti, economist at S&P Global Market Intelligence.

The new business sub-index rose for a sixth consecutive month in December and hit the highest level in four months, driven by acquisitions of new customers especially from the domestic market, the survey showed.

Employment has grown for a 15th consecutive month, although the pace of growth has slowed since November. Companies in the survey said they hired more employees in line with business expansion plans.

Business sentiment remained positive in December, although the level of optimism eased slightly from November. The companies in the survey hope that demand and activity will grow over the coming year.

The rate of inflation did not change and remained high in December, mainly due to the increase in the cost of labor and raw materials. Companies passed on higher cost charges to customers, although the rate of prices paid was also unchanged in December from the previous month.

The composite PMI, which combines manufacturing and service activities, rose to 50.5 in December from 50.1 in November.

The data showed that service sector inflation rose in November, boosting the chances of a Bank of Japan rate hike. BOJ Governor Kazuo Ueda said the bank needs to look at overseas developments, especially the policies of US President-elect Donald Trump.

The BOJ will hold its next policy meeting on January 23-24.

(Reporting by Kaori Kaneko; Editing by Sam Holmes)