Japan's Service Demand Declines as Recovery Loses Momentum Due to Yen Rise

Japan’s demand for services fell for the first time in three months in August, adding to signs of a weakening recovery.

The tertiary index fell 0.2 percent from July, when it rose 1.6 percent, the Trade Ministry said today in Tokyo. The median forecast of 17 economists surveyed by Bloomberg News was for a 0.5 percent decline.

The report supports Prime Minister Naoto Kan’s case for compiling a second economic package as the yen approaches a record high against the dollar, threatening Japan’s export- reliant recovery. Bank of Japan Governor Masaaki Shirakawa said last week the nation’s return to sustainable growth is likely to be delayed.

“Japan’s slowing economy is highly unlikely to pick up this year at least,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “A global slowdown is threatening Japan’s recovery because households aren’t strong enough to make up for weak exports.”

Kan’s cabinet this month endorsed a 5.1 trillion yen ($63 billion) stimulus plan to safeguard the economy and help local governments and small businesses cope with the surging yen as consumer spending, which accounts for more than half of economy, remains sluggish.

The yen is trading at 81.33 per dollar at 8:59 a.m., close to a record high of 79.75 marked in April 1995. Japan intervened in the currency market last month for the first time in six years.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net