The 2020 Olympics are keeping Japanese firms upbeat

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Japan’s massive services sector continued to expand in July, albeit at a slower pace than June, with the Nikkei-Markit services PMI falling to 51.2.

While the expansion in overall activity slowed, new order growth accelerated sharply, hitting the highest level since May 2013.

In response to the continued expansion in activity and new orders growth, firms hired additional staff in July.

Greater staffing levels were linked to business expansions and the belief that activity will increase in the future. However, the rate of job creation in July was marginal.

In what is encouraging news for the Bank of Japan, as they struggle to counteract persistent disinflationary forces, input prices increased at the fastest pace since December 2014 in July.

Reports of higher staff wages, raw material costs and fuel expenses all contributed to greater cost burdens. Subsequently, service sector charges rose at the quickest rate since September last year.

Looking ahead, firms remained positive on the 12-month growth outlook with expectations of business expansion, greater sales growth and demand generated from preparations related to the hosting of the Olympic Games in 2020 as factors behind the continued optimism.

Earlier in the week the separate manufacturing PMI gauge rose to 51.4 in July, the highest level since February 2015.

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