The combination of softening services growth and near-record selling price increases points to a stagflation-adjacent dynamic that is likely to keep pressure on the Bank of Japan to continue tightening, consistent with the direction signalled in the June meeting minutes. ---Earlier:Japan's service sector recovery lost momentum in July even as firms pushed through near-record price increases to protect margins against surging costs. The Services Business Activity Index fell to 51.2 from 52.2 in June, with the rate of expansion easing well below the levels recorded during the opening quarter of 2026. That subdued demand backdrop coincided with a further marked rise in input costs, with Japanese services firms reporting a substantial increase in operating expenses that held close to June's four-year record. Manufacturing output rose at its quickest pace since early 2014, offsetting the slower and only modest rise in service sector activity.