REPEAT: MNI 5 THINGS: Japan May Sentiment Slumps on Costs

--Japan May Econ Watchers Current Index 47.1; Apr 49.0

--Japan May Watchers Current Index Posts 1st M/M Drop in 3 Mths

--Japan May Watchers Outlook Index 49.2; Apr 50.1

--Japan May Watchers Outlook Index Posts 1st M/M Drop in 2 Mths

--Japan Govt Downgrades View: Sings of Moderate Recovery Pausing

--Japan Govt: Firms Concerned of Labor Shortages, Rising Prices

By Max Sato

     TOKYO (MNI) - Japan's key sentiment slumped in May, hit by disappointing

sales during the Golden Week holidays, falling profit margins on higher labor

and material costs and concerns that rising prices of daily necessities will

make consumers more frugal, a key government survey released Friday showed.

     The Economy Watchers Survey conducted between May 25 and May 31 also showed

that sentiment was dampened by uncertainty over U.S.-North Korean peace talks,

the impact of U.S. trade disputes and fluctuating financial markets.

     * The Economy Watchers sentiment index for Japan's current economic climate

plunged 1.9 points to 47.1 in May on a seasonally adjusted basis after edging up

0.1 point to 49.0 in April. It was the first month-on-month drop in three

months. The index stayed below the key level of 50 for the fifth consecutive

month.

     * The Economy Watchers outlook index showed sentiment about the situation

two to three months ahead marked the first drop in two months, falling 0.9 point

to 49.2 in May after rising 0.5 point to 50.1 in April.

     * "The vast majority of the watchers in the retail sector reported that

business was down during the Golden Week holidays (in early May)," Shigeru

Hirota, Cabinet Office director of regional economies, told reporters. "Inbound

spending and demand for high-end goods continued to support department store

sales but spending by middle-income earners was sluggish." Some consumers had

already bought summer clothing in April when temperatures rose, leading to lower

sales in May, while demand for air conditions remained solid, he said.

     * "There is a persistent concern that the rising costs of food and gasoline

will discourage consumers from spending," Hirota said. "In the corporate sector,

many transport firms are worried about continued labor shortages and rising fuel

costs."

     * The Cabinet Office downgraded its overall economic assessment based on

the Economy Watchers Survey for the first time in four months, saying, "The

gradual recovery continues but there are signs that it is taking a breather."

     "Looking ahead, there remain expectations for orders and business

investment, although there are concerns over labor shortages and rising costs,"

the Cabinet Office said, repeating its recent statement.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com