Japan May services PMI falls, new orders growth the slowest since September 2016

TOKYO (Reuters) - Activity in Japan's services sector expanded at a reduced pace in May from the previous month as new orders grew at the slowest pace since September 2016, a private survey showed on Tuesday, suggesting the economy is losing some momentum in the second quarter.

However, the survey also showed business confidence rose to the highest in four months as companies plan to launch new products to meet an expected future increases in demand.

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) fell to 51.0 in May on a seasonally adjusted basis from 52.5 in April.

The index remained above the 50 threshold that separates expansion from contraction for the 20th consecutive month.

"There were worrying signs of deteriorating demand conditions, with new sales increasing at the softest rate in 20 months," said Joe Hayes, economist at IHS Markit, which compiles the survey.

"In an effort to support business activity, firms began to clear their backlogs of work," he said. "Outstanding business decreased for the first time in five months during May."

The composite PMI, which includes both manufacturing and services, fell to 51.7 from 53.1 in April.

Japanese manufacturing activity expanded in May at the slowest pace in seven months as new orders cooled, a revised survey showed on Friday, signalling a softening in domestic demand.

Japan's economy contracted in the first quarter, ending eight straight quarters of growth, which was the longest continuous expansion since the 1980s bubble economy.

Since the end of the first quarter, disappointing factory output has cast doubt on how quickly the economy will recover.

Reporting by Stanley White; Editing by Richard Borsuk

Contact Info: stanley.white@thomsonreuters.com; +81 3 6441 1984 twitter.com/stanleywhite1; Reuters Messaging: stanley.white.reuters.com@reuters.net