Japan's services sector business climate continued improving in January after picking up slightly in December, being nearly flat in November and expanding in the previous two months, according to the latest survey by S&P Global. The Japanese government's new travel discount program and eased Covid border control, both of which took effect in October, continued supporting the tourism industry and some retailers.

On a seasonally adjusted basis, the purchasing managers' index for the services sector rose to a final 52.3 (versus an initial 52.4) from 51.1 in December after slipping to 50.3 in November from 53.2 in October. It has stayed above the key 50 mark for the fifth straight month. The index is above 50.7 in April and 49.4 in March 2022 and recent lows of 44.2 in February and 47.6 in January last year recorded during the Omicron storm.

On the downside, employment levels in the services sector fell for the first time in a year and at the most pronounced rate since May 2020. In terms of prices, the rate of input cost inflation strengthened further in January, but firms raised their selling prices at the softest pace in five months.

The composite output PMI, which is calculated from both the manufacturing and services indexes, rose to a final 50.7 (versus a flash 50.8) in January from 49.7 in December and 48.9 in November, popping just above the breakeven point of 50 after two months of contraction. It compares with 51.8 in October, 51.0 in September, 49.4 in August and 50.2 in July. The index remains below 53.0 seen in June, 52.3 in May, 51.1 in April but is above 50.3 in March, 45.8 in February and 49.9 in January 2022.

"Companies remained optimistic that output will increase over the coming year, but sentiment eased to a nine-month low," S&P said.

No major revisions to the flash readings are expected.

Japan's services sector business climate continued improving in January after picking up slightly in December, being nearly flat in November and expanding in the previous two months. The Japanese government's new travel discount program and eased Covid border control, both of which took effect in October, continued supporting the tourism industry and some retailers. The sector PMI rose to 52.4 from 51.1 in December after slipping to 50.3 in November from 53.2 in October.

The composite output PMI, which is calculated from both the manufacturing and services indexes, rose to 50.8 in January from a final 49.7 in December and 48.9 in November, popping just above the breakeven point of 50 after two months of contraction.

The Japan Composite Purchasing Managers Index (PMI) is based on original survey data collected from a representative panel of companies based in the Japanese manufacturing and service sectors. The Composite PM is a weighted average of the Manufacturing Output Index and the Services Business Activity Index, and is based on original survey data collected from a representative panel of about 800 companies based in the Japanese manufacturing and service sectors. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.