Japan’s service sector continued to expand in December, but at a slower pace as the year drew to a close, according to the latest S&P Global Japan Services PMI data.
The headline Services Business Activity Index fell to 51.6 in December from 53.2 in November, marking the slowest growth rate since May while still extending the expansion streak to nine months. A reading above 50 indicates growth.
New orders also increased at a milder pace at the end of 2025. While some businesses reported improved customer numbers and new projects, others noted relatively subdued demand conditions. Foreign demand for Japanese services showed a marginal increase, the first upturn since June.
Employment in the service sector rose at the fastest rate since May 2023, with companies citing higher sales and the filling of long-held vacancies as reasons for increased hiring. This stronger job creation coincided with growing capacity pressures, as outstanding business accumulated at the quickest rate in three months.
Cost pressures intensified in December, with businesses reporting higher prices for raw materials, staff, equipment, fuel, and construction. The rate of input cost inflation was the sharpest since May and well above the series average, prompting companies to raise their selling prices at a historically strong rate.
The Finance & Insurance sector led the service industry expansion, recording the steepest rise in business activity among the five monitored sub-industries.
The broader S&P Global Japan Composite PMI Output Index, which includes both manufacturing and services, fell to 51.1 in December from 52.0 in November, indicating the slowest growth in seven months. Manufacturing production stabilized after a five-month period of decline.
Despite the slowdown, service providers maintained strong confidence about business activity over the next year, with firms anticipating that new product launches, store openings, and improved client demand will boost sales and output during 2026.
Source: Investing