Japan's service sector activity contracts for 17th month as pick-up stalls

TOKYO (Reuters) - Japan's services sector activity shrank for the 17th straight month in June as the coronavirus dampened demand at home and abroad, underscoring sluggish momentum for the world's third-largest economy.

The decline in the services industry kept overall private-sector activity in contraction for a second month, in a sign the country's economic recovery struggles to pick up despite making progress with a coronavirus vaccine rollout.

The final au Jibun Bank Japan Services Purchasing Managers' Index (PMI) was at a seasonally adjusted 48.0, up from the prior month's final level of 46.5 and a 47.2 flash reading.

It meant services activity came in below the 50.0 threshold that separates contraction from expansion for a 17th month, the longest such streak since a 27-month run through March 2010.

The PMI survey showed firms saw a slower contraction in new business, including from overseas, and grew increasingly bullish about expectations for the year ahead.

Outstanding business, however, saw a slightly faster rate of decline, suggesting many firms in the services sector are still feeling the pain from the health crisis despite their optimism conditions would improve over the year ahead.

"Businesses in the Japanese service sector reported that activity remained subdued as the country continued to battle the latest wave of COVID-19 infections," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

"Firms continued to build capacity in anticipation of increasing demand, though the pace of job creation eased to a four-month low."

Sectors covered in the survey include transport, real estate, communication, information, business services and consumer, excluding retail.

The final au Jibun Bank Flash Japan Composite PMI, which is calculated using both manufacturing and services, was 48.9 in June, the second straight month of a contractionary reading.

(Reporting by Daniel Leussink; Editing by Sam Holmes)