China and Japan Services Sectors Slow in July

Service sector activity in both China and Japan slowed in July, reflecting broader economic challenges in East Asia. In China, the RatingDog services purchasing managers' index, compiled by S&P Global, fell to 50.4 from 54.1 in June, marking the slowest expansion since September 2024. The decline was driven by softer domestic demand, which pushed new business growth to its lowest level since March. While services exports grew due to summer study tours and exhibitions, overall business sentiment dropped to its lowest point since February 2020.

Government of China officials pledged to roll out new policies in a timely manner during a recent meeting, but have yet to introduce fresh stimulus measures. This follows a slump in factory activity caused by adverse weather and weak demand, as the state targets an annual growth rate of 4.5% to 5%.

Similarly, Japan's services business activity index dropped to 51.2 from 52.2 in June. Japanese firms implemented the second-sharpest increase in selling prices on record to offset costs driven by a weak yen, staff wages, and the Middle East conflict. This inflationary environment has increased pressure on the Bank of Japan to raise policy rates. Business confidence in Japan fell toward pandemic-era lows, hampered by supply chain disruptions and labor shortages.