Japan services PMI hits 11-month low in April. War costs bite, input costs 42-month high

Japan's services PMI fell to 51.0 in April from 53.4, an 11-month low, as Middle East war costs drove input inflation to a 42-month high and business confidence hit its lowest since the pandemic. Summary: The S&P Global Japan Services PMI fell to 51.0 in April from 53.4 in March, marking the softest rate of expansion in 11 months and a 13th consecutive month of growth, according to S&P Global Input costs rose at the sharpest rate in 12 months in April, with the Middle East war cited as a key driver, particularly for fuel; output charges rose at the third-steepest rate since the survey began in September 2007, per S&P Global New orders expanded at the slowest pace since October 2025, with new export business falling for the first time in five months, partly attributed to war-related uncertainty weighing on overseas demand, according to S&P Global The Japan Composite PMI Output Index slipped from 53.0 in March to 52.2 in April, the softest reading of 2026 to date, with services weakness offsetting the quickest rise in manufacturing output in over 12 years, per S&P Global Input cost inflation across the composite hit a 42-month high in April, while selling prices rose at the fastest rate on record, suggesting an acceleration in official inflation in coming months, according to S&P Global Economics Associate Director Annabel Fiddes Business confidence was the second-lowest since the pandemic, lifting only marginally from March's post-pandemic low, with ongoing uncertainty over the war and its cost and demand implications cited as the primary drag, per S&P Global Japan's services sector expanded at its slowest pace in 11 months in April, as the economic fallout from the Middle East war drove input costs to their highest in three and a half years and pushed business confidence to near its lowest level since the Covid-19 pandemic, according to the latest S&P Global Japan Services PMI survey. The headline Services Business Activity Index fell to 51.0 in April from 53.4 in March, remaining above the 50.0 threshold that separates expansion from contraction and extending the current growth streak to 13 consecutive months. However, the pace of that growth was the most marginal since May 2025, and the data pointed to a services sector increasingly squeezed between weakening demand and accelerating cost pressures driven by the conflict in the Gulf. New orders expanded at the slowest rate since October 2025, with firms reporting that uncertainty related to the war and elevated prices had weighed on sales. Export business fell for the first time in five months, albeit modestly, as overseas demand for Japanese services softened. Finance and insurance and transport and storage were the strongest-performing sub-sectors within the survey, but the broader picture was one of deceleration. The cost picture was more alarming. Average input prices rose at the sharpest rate in 12 months, with fuel costs linked to the Middle East war cited explicitly as a key driver. Firms responded by passing on higher costs to clients, with output charges rising at the third-steepest rate recorded since the survey began in September 2007. S&P Global warned that the pricing data points to an acceleration in Japan's official inflation rate in the months ahead, a development that will carry significant implications for the Bank of Japan's policy path. The composite picture, combining services and manufacturing, showed the Japan Composite PMI Output Index easing from 53.0 in March to 52.2 in April, its softest reading of the year to date. Strikingly, the composite masked sharply divergent sectoral trends: services growth was the weakest in months, while manufacturing output rose at the fastest rate in over 12 years, driven partly by front-loading as firms sought to build inventory buffers ahead of anticipated war-related supply disruptions. Across the composite, input cost inflation hit a 42-month high and selling prices rose at the fastest rate on record, a combination t