Activity in Japan’s services sector expanded again in July, albeit at a fractionally slower pace than the previous month, a revised survey showed on Monday, indicating resilient domestic demand despite signs of a loss of momentum.
The final Jibun Bank Japan Services Purchasing Managers’ Index (PMI) edged down to 51.8 from 51.9 in June on a seasonally adjusted basis, staying above the 50 threshold that separates contraction from expansion for the 34th month.
“There were some signs that the underlying services economy was beginning to lose momentum, with employment and new business growth both easing,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“Optimism moderated as some firms were concerned that the looming consumption tax hike could impact demand.”
Japan is scheduled to raise its sales tax to 10% from 8% in October.
Policymakers are hoping domestic demand will help offset external pressures that have increased on the back of slowing global growth and the prolonged and intensifying trade war between China and the United States.
Latest survey data showed employment increased for a 33rd month, but the pace of increase was the slowest since October.
Business expectations slipped to a 23-month low of 52.9, while new business at Japanese service providers was at a one-year low amid reports of subdued sales at some companies.
The composite PMI, which includes both manufacturing and services, edged up to 51.2 from 50.8 in the previous month.
Manufacturing survey data last week showed that factory activity deteriorated for a third month in July as the world’s third-largest economy felt the pinch from slowing overseas demand, which has hit exports, industrial production, and business confidence.
Japan’s cabinet on Friday approved a plan to remove South Korea from a list of countries that enjoy minimum export controls, a move likely to heighten tensions between the neighboring countries.
“With the escalation of Japan-Korea tensions, softening growth in services in the run-up to the sales tax increase could see recession risks become increasingly greater,” said IHS Markit’s Hayes.