Japan services sector shrinks after four months of growth

The Au Jibun Bank Japan Services PMI dropped to 49.5 in March 2025, down from 53.7 in February, which had marked a six-month high, according to a preliminary reading.

Japan services sector shrinks after four months of growth

This latest result indicated the first contraction in services activity since October 2024 and the steepest drop in nine months. The decline was broad-based, with growth in new orders, overseas sales, and employment all weakening. Unfinished workloads also rose for the first time this year, suggesting that firms were struggling to keep up with demand, even as overall activity contracted. On the inflation front, cost pressures intensified significantly. Input costs climbed at their fastest rate in 25 months, driven by higher prices for raw materials and wages. This, in turn, contributed to another substantial rise in the prices charged for services, further tightening the financial pressures on businesses and consumers alike.

Sentiment drops to a 50-month low

Lastly, sentiment among services firms dropped to a 50-month low, reflecting growing concerns over escalating costs, ongoing labor shortages, and increasingly muted customer demand projections. These factors contributed to a more pessimistic outlook for the near term, as businesses faced a challenging environment marked by rising expenses and subdued growth prospects.