Yen support: Japan services PMI hits five-month high as inflation strengthens BOJ hike case

Japan's service sector expanded at its fastest pace in five months in August, with the S&P Global final Japan Services PMI climbing to 52.5 from 51.2 in July. This marks the third consecutive month in expansionary territory, driven primarily by robust domestic demand, public sector initiatives, and increased client inquiries. Concurrently, the Composite PMI rose to 53.5 from 52.7, signaling overall economic resilience despite external headwinds. Inflationary pressures remained prominent within the survey results. Composite selling prices rose at the fastest pace since records began in late 2007, and service output charges accelerated at the second-highest rate on record. Although input cost inflation edged down to a four-month low, it remained elevated due to persistent supply chain friction and currency weakness. The combination of accelerated economic growth and historic pass-through inflation significantly strengthens the case for another Bank of Japan interest rate hike. This development provides fundamental support for the Japanese yen, reinforcing expectations of monetary policy normalization despite a sharp contraction in new export business.