Core private-sector machinery orders defied expectations and fell in May, the second consecutive month of decline, due to weakness in the service sector, the government said Monday.
As a result, the government downgrading its assessment of the key gauge for companies' future capital spending.
The orders, which exclude those for ships and from utilities because of their volatility, fell a seasonally adjusted 3.6 percent from April to ¥805.5 billion, the Cabinet Office said. The drop came after a 3.1 percent fall in April.
The Cabinet Office, which previously had warned that a recovery in machinery orders was slowing, said the improvement has "come to a standstill." It was the office's first downgrade in eight months.
Orders from the nonmanufacturing sector dropped 5.1 percent to ¥447.3 billion, hit by reduced orders from railway operators. Orders for telecommunication and construction equipment also fell.
Manufacturing sector orders were up 1.0 percent for the fourth consecutive month of growth to ¥365.6 billion, reflecting solid sales for thermal and hydraulic power generators and ship engines.
"Although machinery orders are volatile, we revised downward our assessment given their fall of some 3 percent for the second consecutive month amid weakness in the nonmanufacturing sector," a Cabinet Office official said.
Overseas demand for Japanese machinery, an indicator of future exports, fell 5.2 percent to ¥941.4 billion.
Total orders, including those from the domestic public sector and abroad, were down 3.1 percent at ¥2.22 trillion, the data showed.
For the current quarter through June, core machinery orders are expected to slip 5.9 percent from the previous quarter, the office said.