2026-01-07
Japan December Services PMI Slows to 51.6
Japan’s seasonally adjusted Services Purchasing Managers’ Index (PMI) fell to 51.6 in December 2025, down 1.6 percentage points from 53.2 in November, marking the lowest level since May 2025. Although the index remained above the 50 expansion–contraction threshold, indicating that the services sector has stayed in expansion for a ninth consecutive month, the notable decline highlights a clear loss of growth momentum. Compared with the preliminary estimate of 52.5, the final reading was revised lower, reflecting growing market caution toward the outlook for the services sector.
Key sub-indices and driving factors:
The services activity index declined from the previous month, with growth slowing to its weakest pace since May 2025, primarily due to subdued domestic demand.
New order growth also moderated, posting the largest month-on-month decline in nearly seven months. While international demand showed a modest recovery, it was insufficient to offset the drop in domestic orders.
Employment growth rose to its highest level since May 2025; however, overall hiring intentions remained cautious, constrained by rising cost pressures.
Inflationary pressures intensified, with year-on-year increases in both input and output prices reaching an eight-month high. Rising goods and service prices continued to push up overall cost burdens.
Business confidence weakened compared with November, with the decline particularly pronounced in the manufacturing sector, driven by global economic uncertainty, geopolitical risks, and structural challenges such as population aging.
Overall, weak demand conditions remain the primary drag on the services sector. The Bank of Japan’s latest Tankan survey also indicates that corporate sentiment toward the three-month outlook has turned more conservative, while consumer willingness to spend has softened amid tariff-related uncertainties. In addition, yen appreciation and ongoing US–China trade frictions have indirectly pressured export-oriented service industries, further dampening new order momentum.
Looking ahead, although Japan’s services PMI remained in expansion territory in December, it eased to a seven-month low, underscoring mounting pressure from slowing demand and rising costs. In the near term (1–2 months), services sector growth is expected to continue moderating, with companies likely to maintain cautious hiring strategies. Should the yen continue to strengthen, the risk of further declines in new orders will increase, potentially pushing the composite PMI closer to the 50 threshold. Over the medium term (within six months), a recovery in global economic conditions combined with continued accommodative monetary policy from the Bank of Japan could help stabilize the services PMI above 52. However, persistent geopolitical risks and inflationary pressures will continue to test business confidence, making upcoming January data a key indicator to watch for signs of a directional turnaround.
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