TOKYO- Japan’s services sector activity expanded at a slower pace in December as growth in new and outstanding business softened and expectations for the 12 months ahead eased to a four-month low.
The world’s third-largest economy is expected to rebound in the final quarter of last year after COVID-19 cases fell, as it seeks to catch up with other advanced nations in its recovery from the pandemic’s hit.
The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 52.1 from the prior month’s 53.0, which was the highest reading since August 2019.
The figure compared to a 51.1 flash reading.
“Japanese service sector businesses signaled a sustained expansion in business conditions at the end of 2021,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey.
“The easing of COVID-19 restrictions allowed customer-facing businesses to operate more freely throughout the final quarter of the year.”
Firms, however, reported raw material and labor shortages, with employment levels dipping to a 15-month low, while business optimism for the year ahead improved at its weakest pace since September.
The private sector as a whole saw cost burdens increase at the year-end amid sustained material shortages and supply chain delays, said Bhatti.
“Concerns that disruption would extend into the new year were elevated,” he added.
The composite PMI, which is calculated using both manufacturing and services, dropped to 52.5 from November’s final of 53.3.
Meanwhile, the Bank of Japan on Thursday offered to pump massive funds into markets after long-term interest rates crept up to a two-month high, signaling its resolve to keep borrowing costs low to support a fragile economic recovery.
Under the offer, the central bank said it would pump 2 trillion yen ($17.22 billion) into markets through temporary government bond purchases between Jan. 7-14.
The announcement came after the benchmark 10-year Japanese government bond (JGB) yield hit 0.105 percent on Thursday, marking the highest level since Nov. 1 last year, tracking a steady rise in US Treasury yields.
While the BOJ has tools available to stem further gains in yields, a sustained rise in US interest rates could challenge the central bank’s resolve to defend its rate target.
Under a policy dubbed yield curve control (YCC), the BOJ pledges to guide short-term interest rates at -0.1 percent and 10-year JGB yields around 0 percent via aggressive money printing.
In a review of its policy tools in March, the BOJ said it would allow the 10-year yield to move up and down by 0.25 percent around its 0 percent target.
With inflation well below the BOJ’s 2 percent target, Governor Haruhiko Kuroda has repeatedly stressed the bank’s readiness to maintain ultra-low rates even as its major counterparts like the US Federal Reserve withdraw crisis-mode stimulus support and eye rate hikes. — Reuters
