(Bloomberg) -- Japan’s slow post-pandemic recovery is showing signs of growing momentum, according to the latest gauges of strength in the service and factory sectors.
The au Jibun Bank’s purchasing managers index of activity in Japan’s service sector rose 0.9 to a record 56.3 in May, helped by the post-Covid return of foreign tourists. The reading in the manufacturing sector added 1.3 to 50.8, rising above the 50 mark that separates a contraction from an expansion for the first time since October 2022.
The readings bode well for the world’s third largest economy, whose recovery has lagged its global peers. The figures follow data last week showing the economy expanded at a faster pace than expected in the first three months of the year.
The improving economic picture along with rising stocks will likely keep speculation simmering that Prime Minister Fumio Kishida may consider an early election. Polls showed a bump in the support rate for his cabinet following the Group of Seven summit in Hiroshima over the weekend.
“It’s a positive environment” for elections, said Taro Saito, head of economic research at NLI Research Institute. “Manufacturing remains stagnant, but when I look at the details, I’m beginning to see some small good signs.”
The government’s rolling back of restrictions on international tourists to Japan has facilitated a rapid jump in inbound visitors, supporting service-focused businesses. At the same time, an easing of supply chain snarls has helped manufacturers, according to S&P Global Market Intelligence, which compiles the survey.
“The Japanese private sector economy continued on an upward trajectory,” said Usamah Bhatti, S&P economist. “Service providers continued to report strong growth momentum with a renewed record increase in business activity.”
As slowdown concerns mount over the global economy in the wake of higher interest rates, Japan’s economy is showing resilience partly because its central bank continues to keep up its monetary easing to support growth. Still, if the US and other major economies slip into recession later in the year, Japan’s exports will likely come under renewed pressure.
For now, the recovery in Japan looks to be gaining momentum. NLI’s Saito cited a potential bottoming out of exports to China, which fell 2.9% in April in value, the smallest drop since the reading turned negative in December.
(Adds economist comments)
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