Japan’s December Service-Sector Activity Rebounds On Tourist Influx

Japan’s service sector activity rebounded in December thanks to a boom in international and domestic tourism as COVID curbs were relaxed, a business survey showed on Friday.

The final au Jibun Bank Japan Services purchasing managers’ index (PMI) rose to a seasonally adjusted 51.1 from November’s 50.3, although it came in lower than the flash reading of 51.7 for December.

The index stayed above the 50-mark that separates expansion from contraction for a fourth consecutive month.

The recovery was supported by an increasing number of international tourists as well as a discount campaign for domestic travellers, according to Laura Denman, economist at S&P Global Market Intelligence, which compiled the survey.

Service firms’ demand from overseas increased at the strongest pace since July 2018, the survey showed.

Visitors to Japan jumped to nearly 1 million in November, the first full month after the country reopened its borders to individual tourists, according to government data.

Companies also benefited from the October start of the National Travel Discount Programme, a government-funded scheme that subsidises trips within Japan.

“With the government-led programme set to continue in January, we can hope to see activity levels across the Japanese service sector expand in the new year,” Denman said.

But inflationary pressures worsened, with both input costs and prices charged rising at rates among the fastest on record.

“Alongside increasing fuel, electricity and raw material costs, firms reportedly began to feel the effects of October’s upward minimum wage rate revision in December,” said Denman.

As more companies hike retail prices for food and energy items, Japan’s core consumer prices rose in November at the fastest pace in 1981, bringing down real wages, a barometer of households’ purchasing power.

Prime Minister Fumio Kishida and central bank Governor Haruhiko Kuroda on Wednesday urged higher wage hikes to achieve sustained economic growth and inflation, ahead of annual spring wage negotiations between companies and labour unions.

The composite PMI, which combines the manufacturing and services figures, rose to 49.7 in December from the previous month’s 48.9, thanks to the robust service-sector activity growth. But the reading stayed below 50-mark that separates expansion from contraction for a second month, after the biggest fall in manufacturing activity in 26 months.

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