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Japan service sector growth picks up in welcome boost for strained economy - PMI

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By Reuters
Japan service sector growth picks up in welcome boost for strained economy - PMI
FILE PHOTO: A worker is seen at a factory at the Keihin industrial zone in Kawasaki, Japan, March 8, 2017. REUTERS/Toru Hanai/File Photo   -   Copyright  Toru Hanai(Reuters)

TOKYO (Reuters) – Activity in Japan’s services sector expanded at a slightly faster pace in June than the previous month, a business survey showed on Wednesday, suggesting domestic demand remains resilient despite growing pressure on the country’s export sector.

The Jibun Bank Japan Services Purchasing Managers’ Index (PMI) edged up to 51.9 from 51.7 in May on a seasonally adjusted basis, pointing to the fastest expansion in three months.

The index stayed above the 50 threshold that separates contraction from expansion for the 33rd straight month.

Survey respondents reported improved domestic demand, outweighing sluggish sales to overseas clients.

If sustained, solid growth in services could offset some of the economic pressure from weaker exports, which are faltering amid slowing global demand and the U.S.-China trade war.

But the outlook for domestic consumption is being clouded by a planned increase in the national sales tax to 10% in October. The previous increase in April 2014 to 8% from 5% hit consumers hard and caused a severe economic slump.

Combined, services and factory activity readings suggest the economy grew 0.3 percent in the second quarter from a year earlier, slowing from the first quarter, said Joe Hayes, an economist at IHS Markit, which compiles the survey.

“The trend of manufacturing malaise and service sector resilience was once again apparent in Japan PMI data for June,” he said.

“The next few months of PMI data will add further evidence as to whether the domestic economy in Japan is in the right shape to cope with (Prime Minister Shinzo) Abe’s planned consumption tax hike.”

Factory activity contracted again in June as new orders plunged. But the composite PMI, which includes both manufacturing and services, edged up to 50.8 from 50.7 in the previous month.

The United States and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei [HWT.UL] in order to reduce tensions with Beijing.

But deep differences remain and analysts are doubtful the two sides can reach a durable deal soon to end their trade war.

China – Japan’s largest trading partner – is also showing further signs of cooling, and global demand for hi-tech products is in a prolonged slump.

(Reporting by Tetsushi Kajimoto; Editing by Kim Coghill; ((; +81-3-6441-1829; Reuters Messaging: