TOKYO, Oct 3 (Reuters) - Activity in Japan’s services sector expanded for a 36th straight month in September, but at a slightly slower pace than in August, in a sign that robust domestic demand continued to support the economy before a sales tax hike kicked in this month.
The final Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropped to 52.8 in September from 53.3 in August on a seasonally adjusted basis, the same as last week’s preliminary reading.
“The service sector continued to be the driving force behind any economic expansion in Japan as we approach the year-end,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
Policymakers are hoping household and business spending will be strong enough to offset the negative impact from a deepening, nine-month export slump largely because of demand being hit by the Sino-U.S. trade war.
The nationwide sales tax hike to 10% from 8% came into effect on Oct. 1, the first such increase by the government since it last lifted the levy in April 2014.
To offset the risk of a slowdown hitting Japan’s economy, the world’s third-largest, the government has rolled out 2 trillion yen ($18.57 billion) for discounts and shopping vouchers as well as public works spending.
It also refrained from increasing the tax on food and non-alcoholic beverages.
New business for Japanese service providers expanded for the 38th month, though the pace of growth was notably weaker than earlier in the year.
“Forward-looking indicators from the services survey suggest that some cracks are beginning to appear,” IHS Markit’s Hayes said.
“New order growth was weaker than the average in the year-to-date, which comes as a surprise given there has been no real surge of advance purchasing ahead of the scheduled tax rise next month.”
The composite PMI, which includes both manufacturing and services, dropped to 51.5 from 51.9 in the previous month.
Japan’s factory output slipped more than expected in August, data on Monday showed, offering a warning that the economy and its manufacturers are feeling the pain from the Sino-U.S. trade war.
$1 = 107.6900 yen Reporting by Daniel Leussink; Editing by Kim Coghill