-- Japan's service sector growth slowed to an 11-month low in April as rising costs and weaker demand weighed on activity, while companies raised prices at one of the fastest rates on record, adding to concerns over mounting inflationary pressure ahead of a possible Bank of Japan rate increase.
The au Jibun Bank Japan Services PMI business activity index fell to 51 in April from 53.4 in March, marking the weakest expansion since May 2025, according to data compiled by S&P Global Market Intelligence. A reading above 50 indicates growth.
New business growth also softened to the slowest pace since October, while export demand contracted for the first time in five months as uncertainty linked to the Middle East conflict and elevated prices weighed on overseas sales.
At the same time, input costs rose at the fastest rate in a year, driven largely by higher fuel and import expenses tied to the conflict and a weaker yen. Companies passed those costs on to customers, pushing selling prices to the third-steepest increase since the survey began in 2007.
The broader composite PMI, which combines manufacturing and services activity, eased to 52.2 from 53, though manufacturing output expanded at the fastest pace in more than 12 years amid front-loaded demand.
"Underlying data indicated that the slowdown stemmed from more subdued growth across the service sector, as manufacturers reported the quickest rise in output in over 12 years amid reports of front-loading due to the
war in the Middle East," said S&P Global Market Intelligence's Economics Associate Director Annabel Fiddes.
The data adds to signs that Japan's economy is entering a more difficult phase for policymakers, with slowing activity coinciding with persistent inflation pressure.
"The business mood continued to be dampened by lingering uncertainty over the war and the possibility of future price hikes and softer customer demand. Notably, optimism around the year-ahead slipped to the lowest
since the COVID-19 pandemic in August 2020," Fiddes added.
Separate government data showed real wages in March rose 1% from a year earlier for a third straight monthly increase, while nominal wages climbed 2.7% to 317,254 yen. However, wage gains continued to lag inflation, with consumer prices rising 1.6%.
The combination of softer services demand and accelerating price pressures could complicate the Bank of Japan's policy outlook as markets increasingly price in a possible rate increase in June. The central bank kept interest rates unchanged in April but warned that inflation could overshoot expectations as companies continue shifting toward higher wages and prices.