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Core private-sector machinery orders fell a seasonally adjusted 4.5 percent in March from the previous month to 990.7 billion yen after a 4.9 percent drop in February, leading the government to downgrade its assessment, the Cabinet Office said Tuesday.

Compared with a year earlier, the orders represent an unadjusted 5.8 percent slip following a 4.2 percent decline in February. The total amount of core orders in March fell below 1 trillion yen for the first time since May 2005.

The results were far below average market expectations of a 1.0 percent monthly gain and a 1.9 percent increase on the year. Declines in demand for items such as machine tools and boilers from makers of general machinery as well as petroleum and coal products contributed to the fall, Cabinet Office officials said.

Taking the March outcome into account, core machinery orders dipped a seasonally adjusted 0.7 percent in the January-March quarter — a turnaround from a 0.3 percent rise in the October-December quarter.

The quarterly data fell partly due to weakened demand for semiconductor manufacturing devices from electrical machinery makers, the officials said.

For the April-June period, the Cabinet Office said manufacturers are expecting core orders to sink 11.8 percent. If this happens, it would be the largest quarterly fall since the government began compiling machinery order data in 1987, the officials said.

Based on the weak results and outlook, the office revised downward its basic assessment, saying, “Core machinery orders are weakening,” compared with its previous view, maintained until last month, that core orders are “seesawing.”

The last time the government described machinery orders as weakening was October 2004.

Economic and fiscal policy minister Hiroko Ota told a news conference she is “concerned” about the 11.8 percent fall in machinery orders projected for April-June but said the Bank of Japan’s “tankan” quarterly business confidence survey shows that capital spending plans by major firms for fiscal 2007 remain firm.

She said the government will also look at other data such as the Finance Ministry’s quarterly corporate survey to monitor capital spending trends.

However, a Cabinet Office official brushed aside concerns about the future conditions for machinery orders, saying they are usually smaller in the first three months of the business year from April than in other periods.

He also said actual results had surpassed initial projections in previous years.

“The projection of an 11.8 percent fall is very low and there is a chance that the actual data will exceed the forecast. Therefore, we will monitor future movements,” the official said.

Takahide Kiuchi, senior economist at Nomura Securities Co., said companies have been putting off boosting capital spending with the slowdown in exports and ongoing inventory adjustment in the information technology, machinery and auto sectors.

“But as the tankan survey showed, those firms, especially nonmanufacturers, have the potential to increase their fixed investment toward the end of the current fiscal year,” he said.

Private-sector machinery orders are considered a leading indicator of corporate capital spending six to nine months down the road.

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