Japan's June factory activity expands at slowest pace in 4 months

TOKYO (Reuters) - Japan's factory activity expanded at the slowest pace in four months in June, in a sign momentum in the world's third-largest economy was levelling out before Tokyo is set to host the Olympic Games next month.

Activity for the private sector as a whole contracted for a second straight month due to the weaker reading for manufacturing and continued shrinking in the services sector, clouding the outlook for second-quarter economic growth in the country.

The au Jibun Bank Flash Japan Manufacturing Purchasing Managers' Index (PMI) fell to a seasonally adjusted 51.5 in June from a final 53.0 in the previous month, largely due to a sharp decline in output.

Output shrank at the quickest rate since last November, the PMI survey showed, underscoring the pressure Japanese firms were facing from restrictions put in place in response to the health crisis.

"Flash PMI data signalled a quicker deterioration in business activity," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

Manufacturers faced disruptions to operating conditions from ongoing COVID-19 restrictions and supply chain pressures, according to Bhatti.

Overall orders and export orders expanded, but at a weaker pace than in the previous month, the survey showed.

But manufacturers' optimism for the year ahead stayed largely intact on hopes that Japan's delayed vaccine roll-out would lead to an easing of coronavirus restrictions and fuel an economic recovery.

The survey also highlighted severe conditions in the services sector, which saw activity contract for the 17th straight month, though at a slightly slower pace.

The au Jibun Bank Flash Services PMI index rose to a seasonally adjusted 47.2 from the previous month's final of 46.5.

The au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, fell to 47.8 from May's final of 48.8.

(Reporting by Daniel Leussink; Editing by Shri Navaratnam)