The acceleration in output growth, combined with near record selling price inflation and a sustained rise in employment, strengthens the case for the Bank of Japan to proceed with a rate hike at its September meeting. A private sector expanding at its fastest pace in six months, alongside firms still able to push through some of the steepest price increases on record, suggests the economy can absorb tighter policy without an immediate loss of momentum, addressing one of the central bank's key hesitations around timing. The divergence between manufacturing, where export orders hit their strongest pace since 2018 on semiconductor and AI related demand, and easing new export business in services, points to an uneven recovery that policymakers will need to weigh alongside the aggregate strength. With cost pressures still elevated but easing from June's peak, the data offers the BOJ a rare combination of firming growth and moderating input cost momentum, arguably its clearest signal yet that current conditions can support further tightening.---Earlier:BOJ seen hiking to 1.25% in September as Japan inflation pressures broaden---Japan's economy is accelerating just as the Bank of Japan weighs whether it is strong enough to handle higher rates.Summary:Flash Composite PMI Output Index rose to 53.4 in August from 52.7 in July, the strongest reading since February and a 17th consecutive month of output growthManufacturing PMI rose to 55.1 from 54.5, while the Services PMI Business Activity Index climbed to 52.3 from 51.2Manufacturing PMI Output Index eased slightly to 56.1 from 56.3, though manufacturers recorded their quickest increase in new work since January 2018Export orders for manufacturers rose at their fastest pace since the start of 2018, driven by demand from semiconductor and AI related industries, while services export business fell sharplyEmployment rose for a 35th consecutive month, with the pace of hiring quickening slightly and running faster than the historical averageInput cost inflation eased from June's near record pace to a five month low, though it remained sharp and firms continued pushing through near record increases in selling pricesBusiness confidence rose to its highest level since February, with manufacturers more optimistic than services firmsBusiness activity across Japan's private sector expanded at its fastest pace in six months in August, according to flash PMI data from S&P Global, as stronger new orders and improving business confidence pointed to a broadening economic recovery. The headline seasonally adjusted Composite Output Index rose to 53.4 from 52.7 in July, marking the 17th consecutive month of output growth and the strongest reading since February.Manufacturing led the acceleration, with the sector recording its quickest increase in new work since January 2018 and export orders climbing at their most pronounced pace since the start of that year, supported by robust demand pipelines in semiconductor and AI related industries. Services activity also strengthened, expanding at its second-fastest rate since February, though the sector saw a steeper decline in new export business, highlighting a divergence in international demand between goods and services. Overall sales growth was joint-quickest over the past six months.Employment rose for a 35th straight month, with the pace of hiring quickening slightly from July and outpacing the historical average, driven by a solid increase in manufacturing payrolls. Services firms added staff only marginally, the softest pace of job growth in a year, though the additional headcount across the private sector helped ease capacity pressures, reflected in the slowest increase in outstanding business in nine months.Cost pressures showed some signs of relief, with input price inflation easing to a five-month low after June's near record pace, though the rate remained sharp and well above the survey's long-run average. Firms frequently linked rising costs for raw materials, fuel and energy to the war in the Middle East, alongside pressure from higher staffing costs and a weak yen. Despite the easing in input costs, selling prices for goods and services continued rising rapidly, with the pace among the steepest on record, suggesting firms have not yet passed through the full extent of previous cost increases.Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said Japan's private sector continued to perform strongly in August, with firms signalling the quickest increase in output since February, and noted that manufacturers recorded their steepest rise in total sales and overseas demand in over eight and a half years. She said the easing of cost pressures would be welcome news, though firms may need a more sustained slowdown in inflation before tempering the near record pace of output price rises. She added that improving business confidence, strong sales growth and further employment gains added to hopes that Japan's private sector remains well placed to perform strongly going forward, provided there are no further shocks to prices or demand.Taken together with Friday's stronger than expected inflation data, the PMI survey adds to a picture of an economy gaining momentum even as price pressures stay elevated, a combination that plays directly into the Bank of Japan's calculus ahead of its September 17-18 meeting. A private sector expanding at its fastest pace since February gives policymakers more confidence that the economy can withstand higher borrowing costs, while the persistence of near record selling price inflation reinforces the argument that underlying price pressures have further to run. With markets already pricing a high probability of a move to 1.25% next month, this release is unlikely to change the expected outcome, but it strengthens the underlying justification the BOJ is likely to cite in explaining the decision, and adds some support to the case sources have described for a potentially faster pace of tightening thereafter. This article was written by Eamonn Sheridan at investinglive.com.