Japan’s services sector shrinks for first time since 2016, USD/JPY tests lows

Japanese Services sector activity fell into contraction for the first time since 2016 in October, mainly due to a powerful typhoon and dwindling domestic demand on the sales tax hike, the latest survey conducted by Jibun bank showed on Wednesday.

The final Japan Services Purchasing Managers' Index (PMI) dropped to 49.7 in October from 52.8 in September and was down slightly from last week's 49.8 preliminary reading.         

The composite PMI, which includes both manufacturing and services, dropped to 49.1, slipping into contraction for the first time since September 2016 when compared to a final reading of 51.5.

Joe Hayes, economist at IHS Markit, which compiles the survey, noted:

"Unfortunately, it seems that the service sector may struggle to offset manufacturing weakness. Short-term pricing and demand adjustments to the taxation change will likely dampen activity in the closing months of 2019."

"There are reasons to be positive as new orders continued to rise, despite the poor weather exacerbating negative effects from the sales tax hike."

The Japanese yen shrugged-off the weak Japanese data amid cautious market mood, as USD/JPY prints daily lows just ahead of the 109 handle.