Insights 
VT 
Japan’s Jibun Bank final Purchasing Managers’ Index (PMI) for June 2025 in the services sector climbed to 51.7, marking a third consecutive month of growth. The preliminary figure was 51.5, with the prior month at 51.0.
Service sector statistics show an uptick in business confidence, reaching a four-month high. New order growth increased slightly, yet new export business, largely linked to tourism, saw its slowest growth rate since December.
Employment Growth and Inflation Trends
Employment in the services sector grew at the fastest rate since January. Input price inflation decreased to a six-month low, whereas output inflation surged to its highest rate in 14 months.
The composite PMI reached 51.5, showing the strongest growth in overall business activity since February, with a preliminary score of 51.4 and a prior score of 50.2. Earlier figures from this week revealed Japan’s final manufacturing PMI for June at 50.1, down from a preliminary 50.4.
What we’ve seen in the latest data release is a slight but clear improvement in Japan’s broader economic activity, particularly within its services segment. A final print of 51.7 for the services PMI in June, revised up from the flash estimate of 51.5, tells us that the sector has continued expanding modestly for the third month running. Anything above 50 points to growth, so this clearly marks an upward trend, albeit gradual rather than sharp.
Confidence across service industries has ticked higher and is now sitting at its most optimistic level since February. Though not explosive, the rise in new orders points to steady demand. Importantly, we see a drop-off in the rate of growth in foreign-oriented services—tourism being a major contributor there. Sectors tied to inbound business are not contracting, but the pace at which they’re expanding has cooled to the slowest since late last year.
Sector Dynamics and Future Outlook
Labour demand tells its own story. There’s been a jump in hiring—the fastest pace in nearly half a year. Now, taking into account that firms typically only commit to adding new staff when they have good reasons to believe orders will keep coming in, this is a concrete sign that firms are feeling confident enough to invest in capacity. It’s more than sentiment; they’re making decisions with medium-term activity in mind.
Where costs are concerned, the picture diverges depending on whether we look at what businesses are paying versus what they’re charging. Input cost pressure appears to be softening—perhaps energy prices or logistics costs have simmered down—having reached the weakest rate of increase in half a year. But at the same time, output prices are climbing at their fastest clip in over a year. That means companies, especially in services, have started to feel comfortable pushing through price hikes. They’re not absorbing costs. They’re passing them on.
When viewed in combination with the final manufacturing PMI—which nudged lower to a still-positive 50.1—we can see that overall economic activity in Japan has picked up incrementally since February. The composite PMI, which combines both sectors, now stands at 51.5. That matters because it reflects the broadest measure of private sector output. Though growth is not rapid, it has maintained its upward direction, and that consistency could help anchor expectations about what comes next.
From our perspective, these signals don’t suggest any immediate reversal in trend. But the disparity between service and manufacturing activity—one rising more, the other stabilising—means that attention is required when positioning across different industries. Especially as inflation signals within services remain a touch warmer than one might expect at this stage of recovery.
Keep in mind we are no longer operating in an environment dominated solely by cost pressures. The ability to raise output prices indicates an embedded demand base, especially domestically. If firms are able to pass through rising costs and maintain volumes, that changes pricing dynamics altogether.
Short-term activity should monitor decisions around hiring closely, especially given how they’ve accelerated. If that pace continues through July, it could reinforce early signs that the private sector is building momentum off a firmer base. The last time we saw these labour gains, output growth followed not long after.
Export-dependent corners ought to account for tourism’s drag. Expectations built on last year’s boom in visitors may now need adjustment. That growth pulse is losing steam, and any positioning that had leaned on another wave of foreign consumption should be revisited in light of these changes.
Price dynamics merit continued tracking. If input costs fall but selling prices rise, the margin picture improves. That equation offers opportunity for those of us looking to model forward earnings with more confidence. This is doubly relevant as we head into the summer, when seasonal trends may distort standard readings.
There’s also the matter of inflation ceilings. Rapid shifts in output pricing, especially in low-interest environments, have the potential to feed back into expectations. With broader wage discussions happening in the background, that could build pressure faster than anticipated. How companies communicate pricing strategies now might reshape inflation readings into the autumn.
Ultimately, these PMI readings give us more than just momentum data. They show where cost pass-throughs are happening and where demand is strong enough to absorb them. We’ve noted that capacity investment in humans—as shown by hiring—is now paired with greater pricing power. Not uniformly, but enough to matter.
Keep the structure in mind. Not every sector is moving in unison, and some of June’s narratives may not hold three months forward. But for now, we see a durable base in services with pockets of resilience, even as other areas tread water.
