TOKYO: Japan's services sector shrank for a third consecutive month in March as the coronaviruses weighed on demand, while Russia-Ukraine war cast doubts on the outlook.
Domestic demand was helped by easing the pandemic curbs in some parts of the country later in the month, despite the fact that the pace of contraction slowed compared to the previous month.
The final in the Jibun Bank Japan Services Purchasing Managers' Index PMI was 49.4 from the previous month's final of 44.2. That was better than a 48.7 flash reading for March.
The lifting of quasi-state emergency measures had boosted sales, said Usamah Bhatti, economist at S&P Global.
Despite increasing demand, confidence in the year-ahead outlook dampened after the resurgence of the virus in China and the outbreak of war in Ukraine. In the past seven months, the firm reported the lowest rise in positive sentiment. Input prices in the sector went up for the 16th straight month, at a nearly the same rate as in the previous month, due to higher raw material costs, particularly for fuel and energy.
The composite PMI, which is calculated using both manufacturing and services, returned to expansionary territory for the first time in three months, rising to 50.3 from February's final of 45.8.
The Reuters poll showed that Japan's economy is expected to return to growth this quarter after a projected contraction in the first three months of the year, after the recent wave of Omicron infections eased, boosting consumer activity.
In March, Japan's private sector firms saw strong rises in cost pressures, with rising downside risks dampening the economic outlook for the 12 months ahead, according to Bhatti.
He said the degree of optimism reached a seven-month low amid concerns about a return to restrictions if cases rise and the Russia-Ukraine war.