Japan services PMI ticks up to 53.2; input inflation hits six‑month high as BoJ call nears
Japan’s services sector extended its expansion in November, with S&P Global’s final Services PMI inching up to 53.2 from 53.1, while input cost pressures accelerated—keeping the Bank of Japan’s December 19 decision squarely in focus for FX and rates traders.
At a glance
- S&P Global Japan Services PMI: 53.2 in November (final) vs 53.1 prior
- Composite PMI: 52.0, unchanged from the previous month
- New business growth accelerated for the first time in three months
- New export orders fell for a fifth consecutive month
- Input price inflation rose to a six-month high; selling prices increased accordingly
Services resilience offsets factory softness
Japan’s service economy remains the country’s growth engine, marking an eighth straight month of expansion and counterbalancing a slight pullback in manufacturing output. November data showed domestic demand improving, with new orders rising at a faster—though still moderate—pace. Survey respondents also reported stronger confidence and hiring intentions, with sentiment around activity and staffing at the strongest levels since early 2025.
That strength, however, has not been mirrored in external demand: export business declined for a fifth month, underscoring a mixed global backdrop and soft trade impulses into year-end.
Price pressures re‑accelerate
The more consequential signal for policymakers was the re-acceleration in cost pressures. Firms reported the sharpest rise in input prices since May, prompting another solid increase in output charges to protect margins. With Japan’s new fiscal stimulus package now approved and aimed at supporting growth and cushioning living costs, the policy mix may deliver further demand support—potentially reinforcing services momentum, but also complicating the inflation outlook.
BoJ calculus: risks tilt toward a December move
The backdrop leaves the Bank of Japan facing a tougher trade-off. Services-led growth and stickier price pressures strengthen the case for tightening, even as manufacturing lags and exports soften. Markets are pricing roughly a two-in-three chance of a BoJ rate hike on December 19, with traders laser-focused on how the Board characterizes domestic demand, wage dynamics and the durability of inflation.
Market implications
– FX: The yen remains sensitive to rate expectations and U.S.–Japan yield differentials. A firmer services pulse and hotter input costs could nudge USD/JPY lower if markets lean toward a December hike, while any hint of BoJ patience may revive carry appetite.
– Rates: JGBs may face upward pressure on yields as inflation indicators firm and policy normalization risk increases.
– Equities: Service-oriented shares could find support from resilient demand, though tighter financial conditions and higher input costs present headwinds for margin-sensitive sectors.
What S&P Global said
S&P Global Market Intelligence noted that overall private-sector output rose modestly in November as a “solid” services expansion offset a slight decline in factory activity. Survey indicators for business optimism and staffing hit their highest since the start of 2025, while the uptick in input costs drove further increases in selling prices. The firm added that the government’s stimulus could bolster demand and output in the months ahead.
This article was prepared by BPayNews.
FAQ
What is the significance of a Services PMI reading above 50?
A PMI above 50 signals expansion versus the prior month. Japan’s 53.2 reading indicates the services sector continued to grow in November, and at a slightly faster pace than in October.
How does the Composite PMI differ from the Services PMI?
The Composite PMI blends activity in both manufacturing and services. Japan’s Composite PMI held at 52.0, showing overall private-sector growth even as factory output softened and services strengthened.
Why does input price inflation matter for the Bank of Japan?
Rising input costs can pass through to higher selling prices, reinforcing inflation. With input inflation at a six-month high, the BoJ faces more pressure to consider policy normalization if it judges price growth to be sustainable.
What does this mean for the yen and USD/JPY?
Stronger domestic services and firmer price pressures increase the odds of BoJ tightening, which can support the yen. However, USD/JPY also depends on U.S.–Japan rate differentials and global risk appetite.
How might Japan’s new stimulus package affect the outlook?
Fiscal support could lift demand and underpin services activity, aiding growth. The risk is that stronger demand overlaps with rising costs, potentially keeping inflation elevated and complicating BoJ decisions.
