Activity in Japan's service sector rose in June, government data showed on Friday, as a wide range of businesses including retailers and restaurants enjoyed a recovery in customers. The tertiary sector index, a yardstick for the broadly defined services economy, rose 0.8 percent from a month earlier. That followed May's unexpectedly weak index, which fell 1.1 percent from April, and was stronger than a 0.5 percent rise forecast by 19 economists polled by last week. Economists expect more improvement in July with the help of a heatwave that boosted consumption, but also said strong numbers came as little surprise amid widespread views that the economy is recovering. "The numbers were slightly stronger than expected, notably in the wholesale sector," said Takehiro Sato, an economist at Morgan Stanley in Tokyo.
"Looking ahead, consumption was probably better in July. We have seen very little July data so far, but Tokyo-area department store sales were slightly better than in June," he added. A breakdown of data by the Ministry of Economy, Trade and Industry showed a variety of sectors lifting the tertiary index. Activity in wholesale and retail businesses rose 2.5 percent after a 3.2 percent fall in May, supported by brisk demand for digital gadgets. Information and communications businesses jumped 5.8 percent, helped by a boost in the software industry, after a fall of 3.5 percent in May. "The gradual upward trend since the second half of last year is continuing," a trade ministry official told reporters.
RECOVERY SEEN CONTINUING
The all-industries index, which covers a broader range of businesses and is considered a close proxy for gross domestic product (GDP), rose 0.6 percent in June from May, better than a 0.2 percent rise predicted by economists. For the April-June quarter, the tertiary index rose 1.6 percent from the previous quarter, the highest increase under the current method using 2000 as the base year. The all-industries index for April-June rose 1.8 percent, the highest since the same quarter of 2000. Markets shrugged off the data and instead focused on surging crude oil prices, which hit a fresh high just under $49 a barrel overnight. The stock market's main indexes ended the morning flat. Government data last Friday showed that Japan's economy grew an annualised 1.7 percent in April-June from the previous quarter, marking the fifth straight quarter of growth. The figure was weaker than expected, mainly because of surprisingly sluggish capital spending, prompting analysts to take a more cautious view of the strength of Japan's recovery. But many believe the recovery will continue, though likely at a slower pace, saying they expect the government to revise up April-June growth figures after more capital spending figures are unveiled in September. "The correlation between the all-industries index and GDP has become weaker in recent months because of the different seasonal adjustment for the figure. But if you average out both the all-industries index and GDP for January-March and April-June, it shows that the economic recovery is still strong," said Azusa Kato, an economist at BNP Paribas. "What we have in the current recovery cycle that we didn't have in previous cycles is a rise in personal spending. If there is no big shock to the U.S. economy from oil prices, Japan's strong economic recovery should be sustainable."///