Japan’s service sector activity contracted

The Covid resurgence gave a blow to the Japan’s economy. Hence, Japan’s services sector activity contracted at the fastest pace in over a year. Activity and new business inflows shrank at the fastest pace since May last year. The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) plummeted to a seasonally adjusted 42.9 from July’s 47.4.

Usamah Bhatti, economist at IHS Markit stated that the Japanese service sector businesses signalled an accelerated deterioration in business conditions. Added to that, the resurgence of COVID infections due to the Delta variant also led to a steeper reduction in incoming business. A surge in Delta infections forced Japan’s government to expand state of emergency curbs. This has hurted activities.

The reading marked the 19th month that services activity came in below the 50.0 threshold which separated contraction from expansion. The final au Jibun Bank Flash Japan Composite PMI, that is calculated by using both manufacturing and services, dropped to a one-year low of 45.5 from July’s final of 48.8. Bhatti said that the confidence about the outlook for private sector activity remained strong in August, even though the risks are skewed to the downside.