(Reuters) - Japan's services sector activity grew at the fastest pace in over nine years in March, a private sector survey showed on Wednesday, suggesting that the post-COVID bounce was gathering steam and providing some offset to a still-weak factory sector.
The final au Jibun Bank Japan Services purchasing managers' index (PMI) rose to a seasonally adjusted 55.0 last month, from February's 54.0, marking the quickest rate of expansion since October 2013.
It was also higher than the flash reading of 54.2 and well above the 50-mark that separates expansion from contraction for a seventh straight month.
"The Japanese services economy signalled a sharp improvement in demand conditions at the end of the first quarter of 2023 as the dissipating impact of the COVID-19 pandemic and stronger customer confidence combined to boost output and orders," said Usamah Bhatti, economist at S&P Global (NYSE:SPGI) Market Intelligence.
The subindexes of new orders and overseas demand grew for a seventh month, rising at the fastest pace since February 2019 and December 2022, respectively.
The survey was an encouraging sign for Japan's post-COVID economic recovery, and provides some offset to the manufacturing PMI released on Monday which showed factory activity still in contraction last month even as the downturn eased somewhat.
Business confidence for the coming year logged a 31-month streak of improvement, the quickest rate since June 2022, with the survey citing positive sentiment on hopes for an extended improvement in post-pandemic conditions.
The number of visitors to Japan ticked down 1% to 1.47 million in February but showed continued "robust recovery," according to the national tourism agency. In May, the country will also end its existing COVID-19 border controls for international visitors to launch a voluntary testing programme at airports.
However, higher costs in fuel, commodity and labour as well as a weaker yen caused firms' average input prices to increase consecutively since December 2020, though the rate was the softest since last January.
"Inflationary pressures remain a key downside risk in Japan, notably as official statistics point to the sharpest rise in inflation in over 40 years, a marked change from the deflationary period over the recent past," Bhatti said.
The subindex for employment expanded for a second month and at the fastest pace in ten months, as workloads and business expansion plans increased.
The composite PMI, which combines the manufacturing and services figures, grew at the fastest pace since June 2022. The index rose to 52.9 in March from the previous month's 51.1, staying above the break-even 50 mark for three consecutive months.
(This story has been refiled to add dropped word to paragraph 1)