TOKYO (Reuters) - Japan's service sector activity expanded in February, extending gains for one-and-a half years, a business survey showed on Tuesday, helped by solid demand in tourism and new product launches.
The service sector has been a positive area for the economy, offsetting some of the weakness in manufacturing caused by subdued global demand.
The final au Jibun Bank Service purchasing managers' index (PMI) rose to 52.9 in February from 53.1 in January. While the expansion eased slightly, the index has remained above the 50.0 threshold separating expansion from contraction since September 2022.
"Activity looks set to carry this momentum into the coming months," said Usamah Bhatti, economist at S&P Global Market Intelligence.
While the service sector remained firm with respondents citing improved business conditions, especially for inbound tourism, the manufacturing output level weakened on soft demand.
Bhatti cautioned a strong fall in manufacturing output is weighing on overall private sector activity.
"It remains to be seen how long the growth momentum provided by the Japanese service sector continues to prop up overall private sector activity," Bhatti said.
Japan received more than 2 million visitors for an eighth straight month in January, setting the stage for a potential record year for tourism. Inbound tourism is an important part of Japan's economy with annual visitor spending exceeding 5 trillion yen ($33.28 billion) for the first time last year.
New business rose to the highest in six months with business inflows helped by such as new products and strong demand for tourism.
Employment grew at the strongest pace since May as firms in the service sector hired full-time workers.
Outstanding business climbed to the highest in eight months on strong demand while backlogs accumulated due to new business expansion.
Higher costs of fuel and raw material contributed to a rise in input prices, which led to the biggest gains in prices charged in six months.
For the outlook, business confidence eased to a four-month low but optimism remained in the service sector on expectations for increased business investment and business expansion plans.
The composite PMI, which combines the manufacturing and service activity figures, eased to 50.6 in February from 51.5 in January.
($1 = 150.2400 yen)