TOKYO (Reuters) - Activity in Japan's services sector expanded at the fastest pace in almost two years in May, a private survey showed on Monday, further evidence that demand in the world's third-largest economy is picking up.
The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 53.0 from 52.2 in April on a seasonally adjusted basis.
The index remained above the 50 threshold, which separates expansion from contraction, for the eighth consecutive month and reached the highest level since August 2015.
"Following the 0.5 percent GDP expansion during Q1, the PMI data are suggestive of further national output expansion in the second quarter," said Paul Smith, senior economist at IHS Markit, which compiles the index.
The index for new business rose to a four-year high of 53.5 in May from 52.2 in March, while business confidence reached its highest level since mid-2013.
The survey also showed jobs were being created at a more rapid pace, good news for policymakers who hope a tightening labor market will soon translate into higher wages and stronger consumer spending.
Services account for around two-thirds of Japan's GDP, so expansion in the sector would support overall economic growth.
A sister survey on Thursday showed manufacturing activity grew at its fastest pace in three months as new orders rose.
Taken together, the composite PMI, which includes both manufacturing and services, rose to 53.4 in May from 52.6, its highest in over three years.
Japan's economic growth in January-March is forecast to be revised up this week to a 2.4 percent annualized expansion from a preliminary 2.2 percent due to strong business investment, a Reuters survey showed.
Rising industrial output and solid exports have also shown that Japan's economy appears to be on track to expand steadily this year.
Reporting by Stanley White; Editing by Kim Coghill