World Economy

Japan’s Services PMI Strengthens

Japan’s Services PMI StrengthensJapan’s Services PMI Strengthens

According to a report provided by Markit Economics, Japan’s services PMI stood at 53 in May compared to 52.2 in April 2017. It met the market’s expectations of 53.

In May, Japan’s service PMI expanded for the eighth consecutive month. A level above 50 shows an expansion in activity, while a level below 50 shows a contraction. In May, the services PMI showed a stronger improvement in its business climate, marketrealist reported.

The stronger improvement in the services PMI indicates that production output, new orders growth, and export orders rose at a stronger rate in May 2017. The growth in May was the highest figure since August 2015.

Japan’s overall domestic demand and overseas demand in the service sector improved in May 2017. Japan’s economy depends on its exports. Consumer spending is also one of the important factors for Japan’s economic growth. Improvement in both of these factors could drive the country’s economic growth.

On the other hand, the Bank of Japan maintained status quo in its monetary policy review meeting on June 15. The central bank decided to maintain its quantitative easing program to increase inflation, which is still low despite improvement in other economic factors.

Various corporates in Japan might improve their productivity by utilizing the central bank’s easy monetary policy. Improved productivity could lead to higher employment, higher business activity, and wage growth in the economy. It could also lead to higher consumer spending and higher inflation.

 Abenomics a ‘Success’

Japan has finally done enough to stimulate its economy and simply needs to keep policy loose until inflation rises, according to an upbeat verdict by the International Monetary Fund.

In contrast with last year’s urgent call for Prime Minister Shinzo Abe to “reload” his economic policies, the IMF said it was comfortable with Japan’s policy stance, and declared that Abenomics was a “success”.

The change in the fund’s position comes after Japan enjoyed its longest sustained run of growth in more than a decade, cutting unemployment to just 2.8%.

But the absence of any IMF call for additional stimulus suggests it has accepted there was no easy way to force inflation up to 2% from its current level of close to zero. Abenomics was supposed to do that with a combination of monetary easing, fiscal stimulus and structural reform.

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