Investing.com-- Japanese manufacturing activity came close to breaking back into expansionary territory in April, while growth in the services sector improved, preliminary data showed on Tuesday. 

The au Jibun Bank Japan manufacturing purchasing managers index (PMI) read 49.9 in April, compared to expectations of 48 and 48.2 in March. April’s reading was the strongest since June 2023- the last time Japan’s manufacturing sector had clocked growth. 

A reading above 50 indicates growth. 

On the services front, the au Jibun Bank Japan services PMI grew 54.6 in April, compared to a 54.1 reading for March. Demand for Japanese services has remained strong despite weakness in other aspects of the economy, with the service sector remaining in expansion after a mild contraction in August 2022. 

Tuesday’s readings represent between 85% and 90% of overall responses to the PMI surveys from Japanese businesses. The data also showed that overall Japanese business activity improved substantially in the beginning of the second quarter, while inflation was also seen picking up.

“While the service sector remained the primary driver of growth, it was encouraging to see the deterioration in manufacturing output ease further in April,” Jingyi Pan, economics associate director at S&P Global Market Intelligence said in a note.

Strength in services and the recovery in manufacturing saw the au Jibun composite PMI rose to 52.6 in April- its strongest reading since August 2023. 

Strength in the Japanese economy, coupled with increasing inflation, gives the Bank of Japan more headroom to raise interest rates further. The central bank is set to meet later this week in its first meeting since a historic interest rate hike in March.