Undergirded by new orders, hiring and growing backlogs, Japan's service sector expanded at the quickest pace in a year, reported S&P Global on Wednesday.

Japan's service-sector purchasing managers index (PMI) to 53.7 in January from 51.6 in December, rising further above the 50-mark that separates growth from contraction, reported S&P Global, citing its monthly survey.

Finance and insurance firms continued to lead the upturn, while the softest rise in activity was seen in the information and communication segment, added the business research and credit-rating agency.

Japan's service providers reported winning new business in January, including at a "more pronounced rate" from offshore customers, and also continued building payrolls, said S&P Global.

Nevertheless, the rising demand for services in Japan taxed providers' capacity in January. "The amount of unfinished work continued to increase at the start of 2026, with firms often linking this to greater inflows of new business," explained S&P Global.

Input inflation eased in Japan, but selling charges continued to rise, possibly suggesting a wider profit margin for Japan's service providers in January.

"Prices data meanwhile signaled a renewed slowdown in the rate

of input cost inflation, said S&P Global. "However, the rate of selling price inflation quickened to a seven-month high, as firms looked to pass on higher costs to customers where possible."

Japan's service-sector managers were optimistic in January, though less so than in the second half of 2025, due to confidence "dampened by concerns over global economic conditions, weaker tourism and labor shortages," said S&P Global.

The Japan Services PMI was compiled by S&P Global from surveys sent to 400 service-sector companies from Jan. 9-27.

Separately, Japan's composite PMI, a combination of the manufacturing and service sectors, rose to 53.1 in January from 51.1 in December, "and signaled a solid and accelerated increase in total private-sector output. Furthermore, the rate of growth was the best recorded in 32 months," said S&P Global.