TOKYO (Reuters) – Japan’s service sector activity grew at the fastest pace in seven months in March, supported by strong demand, particularly for inbound tourism, a business survey found on Wednesday.
The services sector has been the driving force behind the country’s recent economic growth, helping to offset a slowdown in the manufacturing sector hampered by weak global demand.
According to index publisher S&P Global Market Intelligence, the final Au Jibun Bank Service Purchasing Managers’ Index (PMI) rose to 54.1 in March from 52.9 in February, marking the 19th consecutive month of increases .
It remained above the 50.0 threshold that separates expansion from contraction on a monthly basis, but slightly below the flash reading of 54.9.
“Once again, growth was led by the services sector, as manufacturers noted a weaker but still robust contraction in output,” said Usamah Bhatti, economist at S&P Global Market Intelligence.
Inbound tourism boosted the service sector’s confidence in new business to its strongest expansion since August last year, the survey found, while solid demand and customer numbers drove an increase in business activity in March.
New exports have increased for three consecutive months thanks to an increase in foreign tourists.
The level of pending business, an indicator for upcoming work, fell slightly in March from the previous month, but the increase was still near record rates. Business confidence over the next 12 months was also solid.
The Bank of Japan’s Tankan survey, released on Monday, showed that optimism in Japan’s services sector hit a 33-year high in the first quarter, thanks to a boom in tourism and rising profits from rising prices.
Meanwhile, input price inflation rose at the fastest pace in five months in March, driven by rising labor, fuel and utility costs. Businesses, however, continued to pass on cost increases.
The composite PMI, which combines data on manufacturing and services activity, rose to 51.7 in March from 50.6 in February.