TOKYO- Japan’s service activity in September expanded for the 13th month but at the slowest pace since the start of the year, a private survey showed, a worrying sign as the sector has been a key driver of economic growth amid weakness in manufacturing.
The final au Jibun Bank Japan Service purchasing managers’ index (PMI) fell to 53.8 in September from 54.3 in August, hurt by slower new business and a stalling in export orders.
The index level marked the joint-lowest since January, according to the survey compiled by S&P Global and released on Wednesday. It was slightly above the flash reading of 53.3 and remained over the 50.0 threshold separating expansion from contraction since August last year.
However, there were broad signs of softening in the service industry, which has underpinned the world’s third-biggest economy over recent quarters amid weak global demand for its manufactured goods.
New export orders stalled, ending a 12 consecutive months expansion. A boom in inbound tourism was offset by persistent weakness in the yen, the survey showed.
“Capacity pressures were also dampened in September as backlogs rose only fractionally, while firms also saw the sharpest fall in service sector employment since January 2022,” said Usamah Bhatti, economist at S&P Global.
While the services sector expansion remained solid overall, the pockets of weakness last month underlines the challenge for policymakers counting on domestic demand to spur an economic recovery.
Firms reporting a decrease in their workforce attributed it to not replacing those leaving voluntarily.
The industry faced pressure from rising fuel, utilities and labor costs in September, but the rate of input price inflation eased compared to August.
Service providers remained optimistic about their business activity for the coming 12 months, but again the degree of confidence was the lowest in eight months, with some citing inflation and high interest rates as concerns.
The composite PMI, which combines the manufacturing and service activity figures, fell to 52.1 in September from 52.6 in August, staying above the break-even 50 mark for nine consecutive month.
Meanwhie, Japanese authorities refrained on Wednesday from disclosing whether they had stepped into the market to prop up the yen and stressed their resolve to act against excess volatility, keeping markets on alert for the chance of yen-buying intervention.
After sliding below the psychologically important 150 per dollar mark to its weakest level in a year, the yen strengthened sharply overnight on Tuesday, leading some market participants to believe Tokyo had intervened to support the currency.
Speaking to reporters, Finance Minister Shunichi Suzuki declined to comment on whether Tokyo had stepped in, and repeated that currency rates must move stably reflecting fundamentals.
“We’re ready to take necessary action against excess volatility, without ruling out any options,” Suzuki said, a view echoed by top currency diplomat Masato Kanda.
In a sign of the government’s growing alarm over the yen’s weakness, Kanda said he met Prime Minister Fumio Kishida later on Wednesday to “discuss the economy in general.”
Kanda declined to say whether he discussed the yen with the premier, but told reporters after the meeting that any intervention would target volatility rather than yen levels.
The dollar hovered around 149.17 yen in Asia on Wednesday, well off the 150-line, as the remarks from Suzuki and Kanda, who are in charge of deciding whether and when to step in, kept investors on alert over intervention risks.
But it has still depreciated around 12 percent so far this year, and some analysts questioned how long Tokyo can keep yen bears at bay.
“It’s uncertain whether Tuesday’s volatility was due to intervention. But judging from the government’s policy and from the tools left for Japan, the finance ministry is likely keen to step in,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
“But when yen-selling pressure persists, the chance of intervention reversing the dollar/yen’s trend isn’t high.”
