July 5, 2016 / 2:21 AM / 3 years ago

Japan June services sector activity contracts as new business shrinks: PMI

A chef works in preparation at the Akasaka Umaya Japanese-style restaurant in Tokyo December 5, 2013. REUTERS/Toru Hanai

TOKYO (Reuters) - Activity in Japan’s services sector contracted in June as new business shrank the fastest in almost five years, adding to worries that the economy is losing momentum due to weak consumer spending, a private business survey showed on Tuesday.

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) fell to 49.4 in June from 50.4 in May on a seasonally adjusted basis.

The index fell below the 50 threshold that separates expansion from contraction for the first time in two months.

The index for new business fell to 47.3 from 50.4 in the previous month to reach the lowest since September 2011.

“A number of panelists blamed the appreciation of the yen against the dollar as a factor hampering sales, while some commented on the earthquakes that occurred back in April as still having a detrimental effect on demand,” said Amy Brownbill, an economist at Markit, adding that uncertainty about China’s economy was also hurting business sentiment.

The composite index for output in both manufacturing and services fell to 49.0 in June from 49.2 in May on a seasonally adjusted basis, showing the fourth consecutive month of contraction.

Business confidence was subdued in the second quarter and consumer prices fell in May at the fastest pace in three years, data showed last week, heightening pressure on the Bank of Japan to expand quantitative easing.

The government is also seen increasing fiscal spending as weak overseas demand hurts exports, though critics warn that throwing more money into the economy won’t fix chronic problems such as low productivity and a rapidly shrinking labor force.

Services accounted for 70.1 percent of Japan’s gross domestic product, while manufacturing had a 18.7 percent share in 2014.

Reporting by Stanley White; Editing by Kim Coghill

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