Japan’s slow post-COVID-19 pandemic recovery is showing signs of growing momentum, according to the latest gauges of strength in the service and factory sectors.
The au Jibun Bank’s purchasing managers’ index (PMI) of activity in Japan’s service sector rose 0.9 to a record 56.3 this month, helped by the post-COVID return of foreign tourists.
The reading in the manufacturing sector added 1.3 to 50.8, rising above the 50 mark that separates a contraction from an expansion for the first time since October last year.
The readings bode well for the world’s third-largest economy, whose recovery has lagged its global peers. The figures follow data last week showing the economy expanded at a faster pace than expected in the first three months of the year.
The improving economic picture along with rising stocks will likely keep speculation simmering that Japanese Prime Minister Fumio Kishida might consider an early election.
Polls showed a bump in the support rate for his Cabinet following the G7 summit in Hiroshima over the weekend.
“It’s a positive environment” for elections, said Taro Saito, head of economic research at NLI Research Institute. “Manufacturing remains stagnant, but when I look at the details, I’m beginning to see some small good signs.”
The government’s rolling back of restrictions on international tourists to Japan has facilitated a rapid jump in inbound visitors, supporting service-focused businesses. At the same time, an easing of supply chain snarls has helped manufacturers, said S&P Global Market Intelligence, which compiles the survey.
“The Japanese private sector economy continued on an upward trajectory,” S&P economist Usamah Bhatti said. “Service providers continued to report strong growth momentum with a renewed record increase in business activity.”
As slowdown concerns mount over the global economy in the wake of higher interest rates, the Japanese economy is showing resilience partly because its central bank continues to keep up its monetary easing to support growth.
Still, if the US and other major economies slip into recession later in the year, Japanese exports would likely come under renewed pressure.
For now, the recovery in Japan looks to be gaining momentum. Saito cited a potential bottoming out of exports to China, which fell 2.9 percent last month in value, the smallest drop since the reading turned negative in December last year.
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