TOKYO- Japan’s service sector activity expanded for the third straight month in September, but the pace slowed slightly and confidence dipped in a sign of the broader economic strains amid weakness in manufacturing, a private survey showed on Thursday.
The final au Jibun Bank Service purchasing managers’ index (PMI) declined to 53.1 in September from 53.7 in August, according to index publisher S&P Global Intelligence.
It was below the flash reading of 53.9 but above the 50.0 threshold separating expansion from contraction, with the average of the three months to September indicating sustained growth.
The services industry has been a bright spot for the world’s fourth largest economy, anchoring growth and offsetting some drag from a struggling manufacturing sector.
For September, service companies’ new business growth was in expansion territory for the third consecutive month underpinned by solid demand.
Business confidence also remained relatively upbeat though it sank to a 20-month low, mainly as a weak manufacturing sector weighed on aggregate growth in new business.
“How the (service) sector responds in the coming month given downside risks including a stagnating economy will be key to the performance of the wider private sector,” said Usamah Bhatti, economist at S&P Global Market Intelligence.
Japan’s economy expanded an by annualized 2.9 percent rate in the second quarter as steady wage hikes underpinned consumer spending. Capital expenditure continues to grow, though soft demand in China and slowing US growth indicate a solid recovery for the export-reliant country could be some way off.
Export sales grew for two straight months but the pace slowed from August, with key markets including mainland China reporting weak demand, the survey showed.
Moreover, while the rate of input inflation eased to a six-month low, it stayed above the survey’s long-run average as a weak yen raised pressure on wages as well as food and imported raw material prices. Service companies also kept passing increased costs associated with wages and raw materials to customers.
The composite PMI, which combines the manufacturing and service activities, dipped to 52.0 in September from 52.9 in the previous month.
Bank of Japan (BOJ) board member Asahi Noguchi said on Thursday the central bank must patiently maintain loose monetary policy as it will take time to eradicate the public’s view that prices are not set to rise much in the future.
The comments from Noguchi, a known BOJ policy dove, come a day after Japan’s new prime minister said the economy was not ready for further interest rate hikes, in surprisingly blunt remarks that pushed the yen lower.
With inflation exceeding the BOJ’s 2 percent target for more than two years and nominal wages rising, Japanese firms are becoming more willing to pass on higher costs through price hikes, Noguchi said.
But sluggish real consumption suggests households still take it for granted that prices won’t rise much, having experienced decades of deflation and stagnant wage growth, said Noguchi, who voted against the BOJ’s decision to raise rates in July.