Activity in Japan’s services sector moved a notch closer to stabilisation in October, contracting at the slowest pace since January as pressure on demand from the coronavirus pandemic eased.

The world’s third-largest economy has struggled to shake off the drag from the COVID-19 crisis after posting its worst postwar drop in the second quarter, which hit service-sector industries such as travel and dining out especially hard.

The final Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to a nine-month high of 47.7 on a seasonally adjusted basis from 46.9 in the previous month.

The headline index, while still below the 50 neutral level, was much better than a preliminary reading of 46.6, signalling that conditions were gradually moving closer to stabilisation.

“October data indicated a slower decline in Japanese service sector business activity,” said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

“Service providers reported a stabilisation in employment levels, while expectations regarding the year-ahead outlook for activity rose to the highest in nearly three years.”

The main reading was boosted by strong optimism in firms’ outlook for the 12 months ahead. Around 30% of surveyed firms foresaw a rise in activity, IHS Markit said.

Job market conditions also rose, stabilising for the first time since February.

But total new and outstanding business as well as new export business put a drag on overall activity, staying in contraction even as the pace of shrinkage eased from the previous month.

The composite PMI, which includes both manufacturing and services, rose to 48.0 in October from the previous month’s final of 46.6.

Reuters