At YourDailyAnalysis, we note that September once again confirmed the resilience of Japan’s economy, driven by the services sector, which has now recorded expansion for 11 consecutive months. The PMI for services rose to 53.3 from 53.1 in August, surpassing the flash estimate of 53.0. This result signals continued business expansion, primarily supported by strong domestic demand.
A solid stream of new orders from domestic clients has been the main driver of growth. Meanwhile, export orders declined for the third consecutive month, highlighting Japanese companies’ reliance on the domestic market. Service providers cautiously increased employment in anticipation of future demand, while overall business confidence reached its highest level in eight months.
We observe that optimism among businesses is largely linked to planned expansions and new product launches, yet cost pressures remain a challenge. Despite a slight easing in input cost inflation, expenses for labor, raw materials, and fuel remain elevated. This is forcing companies to pass costs onto customers, resulting in higher output prices.
The broader economic picture appears less encouraging. The composite PMI, which includes both services and manufacturing, fell to 51.3 from 52.0 in August, marking the weakest combined growth since May. While services continue to expand, manufacturing activity is contracting, creating an imbalance in Japan’s growth structure.
At Your Daily Analysis, we conclude that Japan’s economy remains driven by domestic demand, while external conditions continue to act as a drag. If export weakness persists, the burden on the services sector will only increase. Our forecast is that Japan’s economic growth will remain moderate in the coming months, with the key challenge being whether the government and the Bank of Japan can find ways to stimulate not only domestic demand but also external trade.
