TOKYO: Japan's services sector activity shrank for a third consecutive month in March as the coronavirus pandemic weighed on demand, while the Russia-Ukraine war cast doubts over the outlook.
The pace of contraction slowed compared with the previous month, however, signalling domestic demand was helped by easing pandemic curbs in some parts of the country later in the month.
The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) rose to a seasonally adjusted 49.4 from the previous month's final of 44.2. That was also better than a 48.7 flash reading for March.
"Panel members commented that the lifting of quasi-state of emergency measures had boosted sales," said Usamah Bhatti, economist at S&P Global, which compiles the survey.
"Despite increasing demand, confidence in the year-ahead outlook dampened following the resurgence of the virus in China and the outbreak of war in Ukraine. Firms reported the softest rise in positive sentiment in seven months as a result."
Business in the sector saw overall input prices rise for the 16th straight month, at nearly the same rate as in the previous month, largely due to higher raw material costs, particularly for fuel and energy.
The composite PMI, which is calculated using both manufacturing and services, returned to expansionary territory for the first time in three months, rising to 50.3 from February's final of 45.8.
Japan's economy is expected to return to growth this quarter following a projected contraction in the first three months of the year, according to a Reuters poll, after the recent wave of Omicron infections eased, boosting consumer activity.
Bhatti said that overall, Japanese private sector firms saw strong rises in cost pressures in March, with rising downside risks dampening the economic outlook for the 12 months ahead.
"The degree of optimism reached a seven-month low amid concerns about a return to restrictions if cases rise and the Russia-Ukraine war," he added.