Japan January services PMI rises on pick-up in domestic demand

February 5, 2019

TOKYO (Reuters) – Japanese services sector activity rose in January due to a pick-up in domestic demand, a business survey showed on Tuesday, but there are growing worries that economic activity will weaken due to the U.S.-Sino trade war.

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to a seasonally adjusted 51.6 in January from 51.0 in December.

The index remained above the 50 threshold that separates contraction from expansion for the 28th month.

“Business activity grew at a stronger rate, supported by stronger demand and continued growth of employment,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

The improvement in the services sector is likely to be overshadowed by a survey last week showing manufacturing activity skidded to a 29-month low as exports tumbled due to the trade war.

The composite PMI, which includes both manufacturing and services, fell to 50.9 in January from 52.0 in December because of the deterioration in the manufacturing sector.

Another risk to Japan’s domestic demand is the government’s plan to raise the nationwide sales tax to 10 percent from 8 percent in October.

The government will offer temporary tax breaks and subsidies to soften the blow to consumption, but some economists are worried that households will still curb spending after taxes rise.

Japan’s household sentiment is sensitive to changes in the global economic outlook, because many manufacturers export machinery and electronic parts to companies in China.

This means consumer spending could also weaken if the trade war between the United States and China drags on without resolution.

(Reporting by Stanley White; Editing by Kim Coghill)