Japan’s services sector shrinks for thirteenth straight month
The country’s business activity is hit by curbs put in place to stop the spread of coronavirus pandemic, leading to weak demand
Japan’s services sector extended declines in February for a thirteenth straight month, as business activity was hit by curbs put in place to stop the spread of the coronavirus pandemic, leading to weak demand.
The contraction hiting the services sector comes as a state of emergency for Tokyo and three surrounding prefectures put in place in part to take pressure off the nation’s medical system is set to end on Sunday.
The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) came in at a seasonally adjusted 46.3, staying below the 50 level that separates contraction from expansion for the 13th month.
The survey result, which compared to the prior month’s 46.1 and a preliminary 45.8 reading, was largely the result of a faster decline in new business and a continuing contraction in export business.
That showed demand remained in a fragile condition as the impact of the pandemic dragged on, said Usamah Bhati, economist at IHS Markit, which compiles the survey.
“Nevertheless, short-term uncertainty appears to be easing as vaccine rollouts begin,” Bhati said.
“Firms looked to prepare for a boost in demand by expanding employment levels for the first time since last February.”
Optimism was also seen in the outlook component of the survey, which showed businesses grew the most positive about the 12 months ahead since January 2018.
The composite PMI, which is calculated using both manufacturing and services, was 48.2 in February from the prior month’s final reading of 47.1, also staying in contraction for a 13th month.
Meanwhile, Japanese shares ended marginally higher on Wednesday, as investors picked up cyclical stocks on hopes of a quicker economic recovery from the pandemic-led recession.
However, gains were capped by worries about bond market volatility and talk of huge selling for rebalancing this month.
The Nikkei average rose 0.51% to close at 29,559.10, while the broader Topix gained 0.51% to 1,904.54.
“With the vaccine rollouts globally, expectations for the economic normalization is growing. That is prompting investors to buy economic sensitive shares,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Iron and steel sector rose the most among 33 sector sub-indexes on the Tokyo exchange. Kobe Steel surged 9.09%, making it the biggest gainer in Nikkei. Nippon Steel jumped 6.76%, while JFE Holdings soared 8.36%.
Topix Value Index rose 1.27% as growth-oriented shares lost 0.25%, led by declines in high-flying momentum shares as well as chip-related stocks, in a sign of investor caution against their loty valuation.
Electric-motor maker Nidec fell 3.03%, while medical portal operator M3 lost 1.72%. Chipmaking machine maker Tokyo Electron shed 1.22%.
As the Topix has risen about 35% so far in the current Japanese financial year ending on March 31, market players are geting wary the country’s pension funds could sell a large amount of shares for rebalancing by the financial year-end.
Many investors are still not sure whether a sell-off in global bonds, which hit the market in recent weeks, is over, despite signs of some stability in the last few sessions.
Separately, Japan’s powerful lower house on Tuesday passed a record $1 trillion budget for the coming financial year, and lawmakers are already debating further stimulus to cope with the economic fallout from the coronavirus pandemic.
Like many other nations, Japan has spent heavily to counter the pandemic. The budget for the year beginning in April contains 5 trillion yen ($47 billion) in such emergency reserves and that comes on top of three pandemic-specific economic packages, worth a combined $3 trillion, equivalent to 60% of Japan’s GDP.
The budget also reached record levels due to increases in social security spending to support its rapidly ageing population as well as record defence spending to counter threats from North Korea and China.
But Japan has the industrial world’s heaviest debt burden and analysts warn further stimulus may cause spikes in Japanese bond yields and government borrowing costs that have so far been kept low due to massive money printing from the central bank.
“Japan’s fiscal situation is already very severe. Its bond market could come under atack from investors if the lack of fiscal discipline gets out of hand,” said Kazumasa Oguro, economics professor at Hosei University.
The world’s third-largest economy is on the cusp of another slump in the current quarter due to a second state of emergency imposed this year. It has recently been lited for many prefectures and is due to be lited for Tokyo and its surrounding areas from early March.