The final au Jibun Bank Service purchasing managers' index (PMI) grew to 50.9 in December from 50.5 in November, according to the survey compiled by S&P Global Market Intelligence.

It was lower than a flash reading of 51.4 but stayed above the 50.0 threshold separating expansion from contraction for a second straight month.

"December data revealed a positive month for the Japanese service sector, with sustained rises in both business activity and new business," said Usamah Bhatti, economist at S&P Global Market Intelligence.

The subindex of new business rose for a sixth straight month in December and hit the highest level in four months, led by acquisitions of new customers especially from the domestic market, the survey showed.

Employment grew for a 15th consecutive month, although the pace of growth slowed from November. Firms in the survey said they hired more employees in accordance with business expansion plans.

Business sentiment stayed positive in December although the level of optimism softened slightly from November. Firms in the survey are hopeful demand and activity will grow over the coming year.

The rate of inflation was unchanged and remained high in December, largely due to rising costs of labour and raw materials. Firms passed higher cost burdens on to clients, though the rate of prices charged was also unchanged in December from the previous month.

The composite PMI, which combines manufacturing and service activity, rose to 50.5 in December from 50.1 in November.

Data showed service-sector inflation picked up in November, bolstering the Bank of Japan's rate-hike odds. BOJ Governor Kazuo Ueda said the bank needs to watch overseas developments, especially the policies of the U.S. President-elect Donald Trump.

The BOJ holds its next policy meeting on Jan. 23-24.