— Adds Official Comments, Background Throughout
— Japan Govt Repeats View: Machine Orders Picking Up
— Japan May Core Machinery Orders +4.3% Y/Y Vs Apr +9.4%
— Japan May Core Machinery Orders Post 3rd Y/Y Rise In Row

TOKYO (MNI) – Japan’s core private-sector machinery orders slumped
a seasonally adjusted 9.1% in May from the previous month, posting the
first m/m drop in three months after surging 4.0% in April and 5.4% in
March, the Cabinet Office said on Thursday.

It was the largest month-to-month drop since -10.2% recorded in
August 2008.

The May core figure came in much weaker than the consensus forecast
of a 2.2% m/m fall.

But from a year earlier, core private machinery orders rose 4.3% in
May after +9.4% in April. In March it rose 1.2%, the first y/y gain in
21 months. They have recovered from the record 39.5% plunge marked in
January 2009.

Looking at the longer-term trend, the Cabinet Office repeated is
assessment adopted last month, saying, “there are signs of a pickup” in
machinery orders.

Last month it upgraded its view for the second month in a row.

“Compared to the average amount of core orders in January-March,
the April-May average is still 1.4% higher, so the improvement is still
continuing,” said a Cabinet Office official.

The Cabinet Office has said core orders for the April-June quarter
are estimated to rise 1.6% quarter-over-quarter after they posted a 2.9%
rise in January-March.

In order to achieve the forecast growth, core orders will have to
rise 5.5% m/m in June, the official said. If the orders were unchanged
in June from May, they would post a 0.2% drop on quarter in April-June.

Core private-sector machinery orders, which exclude volatile demand
from electric utilities and for ships, are viewed as a leading indicator
of corporate capital spending.

In May, the core orders in the private manufacturing sector plunged
by 13.5% from the previous month to Y256.2 billion after slumping 5.5%
in April, which was the first month-on-month drop in five months.

It was the largest decline since -16.0% m/m seen in July 2009.

The decrease in the sector was led by weaker orders from the
petroleum and coal sector and non-metallic mineral sector (both showing
sharp drops after large gains in the previous month), as well as
electrical machinery and non-ferrous metals sectors, among others.

“The recent weakness in orders from electrical machinery as well as
information and communication equipment makers appears to be partly due
to the fact that we’ve already seen the first wave of the effects of the
government’s reward program for buying greener consumer electronics,”
said the official.

Orders from the non-manufacturing sector excluding shipping lines
and power firms were also weak, down 6.0% at Y436.0 billion in May, the
first drop in three months after rising 5.3% in April.

The fall in non-manufacturing demand was led by softer orders from
the real-estate, transportation and leasing sector.

“We consider that orders from non-manufacturers are moving
sideways,” the official said.

In February 2010, core orders for the non-manufacturing sector fell
to a recent low of Y393.5 billion, close to the lowest level of orders
from non-manufacturers at Y369.0 billion recorded in May 1987.

The total non-manufacturing sector, including shipping lines and
power firms, fell 9.5% m/m in May, posting the first drop in four
months, after gaining 4.2% in April.

The key to a rise in total core domestic private-sector orders is a
recovery of demand from non-manufacturers, including telecom carriers
and transportation firms, because the total demand from
non-manufacturers is much higher than that from manufacturers.

The telecommunications industry has been hit by stiff price
competition among mobile carriers but posted the third month-on-month
gain in orders in May in the past four months.

Orders from finance and insurance, whose capital expenditure for
merging computer network systems has run its course, have also shown
signs of a pickup, chalking up three gains in the past four months.

Outside the core domestic private sector, machinery orders from
overseas rebounded by 2.7% in May to Y760.8 billion after falling 3.7%
in April, which was the first drop in five months.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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