Japan's service sector mood hits nearly 2-year low in May

TOKYO (Reuters) - Japan's service sector sentiment worsened in May to levels unseen in nearly two years, government data showed on Monday, as rising fuel and food costs from a weak yen dragged on household spending.

The data highlights the fragile nature of consumption, making it harder for the Bank of Japan to justify further interest rate hikes.

An index measuring sentiment among service-sector firms like taxi drivers and restaurants stood at 45.7 in May, down 1.7 point from the previous month and hitting the lowest level since August 2022, the survey showed.

Moreover a gauge of firms' sentiment on the economic outlook also fell 2.2 points to 46.3, worsening for the third straight month and marking the lowest level since July 2022.

The "economy watchers" survey is closely watched by markets as a leading indicator of household spending and the broader economy, due to the polled firms' proximity to consumers.

(Reporting by Leika Kihara and Kentaro Sugiyama; Editing by Shri Navaratnam)