Japan's service industry stagnated in March while broader private sector activity contracted at the fastest pace in more than two years, a business survey showed on Wednesday.
The service sector's slowdown is of particular concern to the world's fourth-largest economy, which counts on it to anchor growth and offset some of the drag from struggling manufacturing.
The au Jibun Bank Japan Services Business Activity Index fell to the neutral level of 50.0 in March from a joint-six month high of 53.7 in February, better than a flash reading of 49.5, according to index publisher S&P Global Intelligence. The 50.0 threshold separates expansion from contraction.
"After a solid performance in the opening two months of the year, business activity across Japan's service sector stagnated in March as firms commented that market conditions had softened," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.
New order growth slowed for the second straight month to its weakest since last November, according to the survey. New export business continued expanding thanks to solid demand from mainland China and Taiwan, even though the pace eased from last month.
Business expectations for the year ahead were solid, but optimism softened to the lowest since January 2021, weighed by concerns about labour shortages, an aging population and global trade uncertainties, Fiddes said.
Japanese companies are worried President Donald Trump's blitz of tariffs against trading partners would trigger a broader global downturn.
Meanwhile, input price inflation climbed at the fastest pace in 19 months with respondents citing higher labour, raw material and fuel costs as well as exchange rates, the survey showed. Output prices eased to a five-month low.
The composite PMI, which combines manufacturing and service activity, fell to 48.9 in March from 52.0 in February, the first contraction since October.
