Japan’s PMI Services was finalized at 53.7 in February, up from January’s 53.0, marking a six-month high. PMI Composite also improved from 51.1 to 52.0, the strongest reading since September 2024.
According to Usamah Bhatti, Economist at S&P Global Market Intelligence, service sector businesses saw higher sales volumes, with export demand contributing to the expansion. Meanwhile, the broader private sector recorded its steepest rise in activity in five months, supported by a milder contraction in manufacturing.
Despite the growth, overall business confidence showed signs of softening. Bhatti noted Firms expressed concerns over labor shortages and uncertainty stemming from US trade policies, leading to the weakest sentiment since January 2021.
BoJ’s Uchida: Interest rate to gradually approach neutral by late FY 2025 to FY 2026
BoJ Deputy Governor Shinichi Uchida reinforced today that interest rates will continue to rise if the bank’s economic projections hold. He highlighted in a speech that BoJ expects inflation to stabilize around the 2% target in the second half of fiscal 2025 to fiscal 2026, with “effects of the cost-push wane” while underlying inflation strengthens with wages growth.
“The policy interest rate at that time is considered to approach an interest rate level that is neutral to economic activity and prices,” he added.
However, Uchida acknowledged that determining the “neutral” interest rate level remains uncertain. While in theory, it should be around 2% plus Japan’s natural rate of interest, estimates for the latter vary significantly from -1% to +0.5%.
Given this wide range and estimation errors, BoJ will avoid relying solely on theoretical models and instead “examine the response of economic activity and prices as it raises the policy interest rate”
Full speech of BoJ’s Uchida here.