Japan’s service environment is improving, the rising cost of cloud computing

Written by Leika Kihara

TOKYO (Reuters) – The situation in Japan’s services sector improved in December but companies expect conditions to worsen further ahead, a government survey showed on Tuesday, a sign of a rise in the cost of living against domestic spending.

Separate data showed that corporate bankruptcy cases rose sharply last year due to rising raw material costs and labor shortages, highlighting the difficulty of inflation in Japan’s corporate sector.

The data increase comes ahead of the Bank of Japan’s two-day policy meeting that ends on Jan. 24, where some analysts expect the central bank to raise interest rates from the current 0.25%.

BOJ Deputy Governor Ryozo Himino said on Tuesday the central bank will debate whether to raise interest rates next week, citing rising positive signs of rising wages in Japan.

“The likelihood that the Japanese economy will be in line with our projections is gradually increasing,” he told a news conference.

The opinion rating index among firms working in the service sector, such as taxi drivers and restaurants, stood at 49.9 in December, up 0.5 points from the previous month for the second consecutive month of increases, the government’s survey of “economic watchdogs” showed.

But the average opinion of companies about the state of the economy fell by 0.6 to 48.8, as the prices of fuel and food went up, the survey said.

The survey of “economic observers” is widely regarded by markets as a leading indicator of household spending and the wider economy, due to the closeness of firms to consumers.

A separate survey by independent think tank Teikoku Databank released on Tuesday showed that corporate bankruptcy cases will reach 9,901 in 2024, up 16.5% from last year to mark the highest level since 2014.

Japan’s economy grew 1.2% year-on-year in the three months to September, down from the previous quarter’s 2.2% increase, while consumption rose 0.7%.

Core inflation has remained above the BOJ’s 2% target for nearly three years due to rising import costs from the weak yen.

Policymakers hope that average workers’ wages, which have recently risen at an annual rate of 2.5% to 3%, continue to rise and support consumption. While rising wages can boost consumption, they will squeeze small firms that cannot make enough profit to retain workers through wage increases.

(Reporting by Leika Kihara; Editing by Bernadette Baum)