Japan's Service Sector Shrinks Most Since 2014

Japan's service sector contracted at the strongest rate since April 2014 as that the COVID-19 outbreak had squeezed tourism, survey data from IHS Markit showed Wednesday. The au Jibun Bank services Purchasing Managers' Index fell to 46.8 in February from 51.0 in January.

A score below 50 indicates contraction. This was the lowest since April 2014, the month in which the sales tax increased to 8 percent.

Data pointed to the steepest drop in demand for eight-and-a-half years. Further, the COVID-19 outbreak had squeezed new business receipts due to fewer foreign visitors in Japan.

Optimism among Japanese service providers eased for the third straight month to a near four-year low in February. On a more positive note, service sector employment continued to rise.

Input costs climbed amid reports of higher energy, transport and staff costs, although the rate of inflation eased. Meanwhile, output charges rose for a second month in a row.

The au Jibun Bank composite output index fell to 47.0 in February from 50.1 in January. The decrease was solid and the strongest since April 2014. The contraction in output was broad-based by sector, although services firms recorded the stronger decline.

Policymakers are powerless in offsetting the economic effects of coronavirus, Joe Hayes, Economist at IHS Markit, said.

Supply chains are likely to face bottlenecks as Chinese vendors face heavy backlogs, while increasing cases of COVID-19 outside of China will do little to spur consumers to travel and go out to restaurants, Hayes noted.

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