Growth in Japanese business activity eased in September as the service sector expanded at a slower rate before a consumption tax hike took effect this month, survey data compiled by Jibun Bank Corp. and IHS Markit showed.
The final Jibun Bank Japan Composite Output Index came in at 51.5 in September, in line with a flash estimate and down from an eight-month high of 51.9 in August.
The services business activity index fell to 52.8, as expected, from a nearly two-year high of 53.3.
New work inflows in the services sector increased, while demand growth was unchanged from July and August. New export sales growth also accelerated as the rate of increase in orders from abroad reached the highest level since July 2018.
Business confidence among services firms reached a three-month high on the back of expansion plans and expectations of higher demand. Some companies warned, however, that the recently implemented sales tax hike could have an adverse impact on the economy, the report said.
The strength of the service sector helped offset a continued slump in manufacturing, which saw output decline for the ninth month in a row, the survey found.
But despite service firms' resilience, forward-looking indicators suggest that "some cracks are beginning to appear," said Joe Hayes, economist at IHS Markit.
"The alarming divergence between manufacturing and services, something which is apparent across many advanced economies, remains at large in Japan. However, underwhelming new business growth suggests that downside risks in the service sector are appearing."
