Japan’s Services Sector PMI Grew Amid High Domestic Demand

Japanese activity in the Japanese sector grew in January because of an increase in domestic demand based on the business survey published on Tuesday. However, there are rising concerns of its weakening due to US-China trade war.

The Purchasing Managers Index (PMI) by Markit/Nikkei Japan Services showed a seasonally adjusted increase from 51.0 in December to 51.6 in January. The figure stayed above the 50 mark which separates a decline from expansion in over two years.

Flourishing business activity was supported by high demand and steady growth in employment, commented by an economist at IHS Markit, Joe Hayes.

However, the optimism because of the services sector growth will be opposed by a decline in exports, reaching a 29-month low in the manufacturing sector due to the trade war.

The composite PM from both the manufacturing and services dropped to 50.9 in January from 52.0 in the previous month because of the decline in the manufacturing sector.

Another issue that adds pressure is the plan of the government to increases tax on nationwide sales to 10 percent from 8 percent in October.

Although the government will offer transitory tax exemptions and subsidies to lessen the economic impact, some economists are worried that this affect household spending after tax hike as it is sensitive to global economic changes. Moreover, this would influence consumer spending and weaken if the trade war continues.