FX.co ★ Stagnation in Japan Service Sector Confirmed

Japan’s S&P Global Services PMI registered 50.0 in May 2026, matching the flash estimate and marking its lowest level since March 2025. The reading brought an end to a 13-month stretch of expansion, indicating a stagnation in the services sector.

Growth in new orders slowed to its weakest pace since the current upturn began nearly two years ago, while export orders declined at the fastest rate in more than four years, highlighting softer external demand. Employment growth eased to a nine-month low, even as backlogs of work increased modestly.

Cost pressures intensified, with input prices rising at the sharpest rate in 43 months. This was driven by higher fuel, energy, and raw material costs, as suppliers implemented price hikes linked to tensions in the Middle East. Rising labor costs added to the squeeze, prompting firms to raise output charges at a near-record pace.

Business sentiment improved for a second consecutive month but remained below post-pandemic averages. Companies pointed to geopolitical risks, persistently elevated costs, and demographic challenges stemming from an aging population as key concerns.