Activity across the Japanese services sector continued to contract for the 16th consecutive month during May on the back of the government extending restrictions to combat the fourth wave of the pandemic while external demand suffered as other Asian nations also reel under the impact of fresh spike in infections. The au Jibun Bank Japan Services PMI declined to a seasonally adjusted 46.5 during May from April when it had touched 49.5.

On a somewhat encouraging note, the reading did come in better than the flash services PMI reading for May of 45.7. Not only did the pace of contraction pick up from April to May, but the sector also remained in a state of contraction since February 2020, well before the pandemic had even struck Japan.

The contraction in the services industry was driven by a sharp drop in new business as well as in activity, which fell at the fastest pace seen since three months. However, firms increased their hiring activity for the fourth straight month despite the strained conditions even as they expressed optimism about business conditions for the upcoming year.

Economist at IHS Markit, Usamah Bhatti, notes, “Although the level of positive sentiment was strong overall, it fell for the second month running amid a renewed rise in COVID-19 cases. Firms highlighted concerns over the timing of the recovery given the introduction of stricter measures, which are currently due to ease shortly before the planned start of the Tokyo Olympic Games in July.”