The growth of Japan's services sector slowed down in July as demand weakened and costs went higher, dampening sentiment towards the sector.
Although still remaining in expansionary territory, the S&P Global Japan Services PMI fell to 51.2 from 52.2 in June, according to a Thursday release from the ratings firm.
The reading indicates expansion when it is above the 50 neutral mark. Otherwise, it is in contraction when it falls beneath 50.
"The recovery of Japan's service sector lost momentum in July, with firms signaling slower increases in both business activity and new orders compared to June. This occurred amid a backdrop of substantial cost pressures and sharply rising selling prices," Annabel Fiddes, S&P Global Market Intelligence's economics associate director, said.
The easing of the business sector's growth was attributed to weaker demand, with foreign demand declining for the fourth straight month.
Services firms said operating expenses and staff costs increased as a result of the Middle East conflict. The increase is expected to be passed on to clients, bringing higher selling prices.
As a result of weaker demand and new orders, hiring of new employees also slowed down. Sentiment was also dampened due to rising costs and labor shortages, as well as the ageing population.
Meanwhile, the S&P Global Japan Composite Output Index slipped to 52.7 in July from 52.8 in the prior month as new orders and job creation eased, despite stronger upturn in exports.
