Japan October services PMI rises to more than two-year high as new orders accelerate

TOKYO (Reuters) - Japan’s services sector grew at the fastest pace in more than two years in October as new orders accelerated sharply, suggesting the economy is picking up momentum in the fourth quarter.

Factories line the port of Osaka, western Japan October 23, 2017. REUTERS/Thomas White/Files

The Markit/Nikkei survey released on Monday showed its Japan Services Purchasing Managers Index (PMI) rose to a seasonally adjusted 53.4 from 51.0 in September.

The index remained above the 50 threshold that separates expansion from contraction for the 13th consecutive month and was at the highest level since August 2015.

The new business index also expanded rapidly to 53.8 in October from 52.0 in the previous month, the fastest pace since May 2013.

The strong demand and rising levels of new business encouraged the service sector to boost employment, extending the current sequence of increase to ten months.

In another positive sign, the index for business sentiment rose to a fourth-month high of 55.5 from 53.3 in September.

“The Japanese service sector made a strong start to the fourth quarter, with the headline business activity index hitting a 26-month high,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“In the wake of (Prime Minister) Shinzo Abe’s election victory, confidence among Japanese service providers lifted.”

Abe’s ruling coalition retained power with a comfortable victory in lower house elections last month, defeating a challenge from an upstart opposition party that threatened to alter the course of government policy.

The composite PMI, which includes both manufacturing and services, rose to 53.4 from 51.7 in September to reach the highest level in five months.

Some economists expect Japan’s growth to slow in July-September due to a bit of weakness in consumer spending. However, the services sector PMI suggests that any cooldown would be modest and the economy remains in good health in the current quarter.

Reporting by Stanley White; Editing by Shri Navaratnam