Japan machinery orders hint at slowing recovery

Japanese core machinery orders rose 5.6 percent on month in June, but the rebound from May’s plunge was much weaker than expected, prompting the government to downgrade its assessment of the nation’s capital investment activity for the first time in nine months.

“The Japanese economy is apparently feeling the effects of a slowdown in Europe and China,” said Yoko Nakagaki, head of the government’s business statistics bureau.

The Cabinet Office said Thursday that machinery orders are moving back and forth between positive and negative territories, revising a assessment that they were in a gradual improvement trend.

It was the first downgrade of the assessment since September 2011. The government made a similar assessment that capital spending was moving sideways between September 2011 and January 2012.

The weak recovery came after a 14.8 percent plunge in core orders in May. The figure is considered a leading indicator of corporate capital investment, which accounts for about 15 percent of the economy.

“With overseas economies remaining weak, reconstruction demand from last year’s earthquake in northeastern Japan would be even more crucial for the outlook on the capital-investment trend,” Nakagaki said.

The data showed that Japanese companies are more likely to build new plants and purchase new equipment inside Japan rather than in places such as China and Europe.

Economists surveyed by Dow Jones Newswires and the Nikkei predicted an 11 percent rebound for June, with some expecting an upward revision to the May figure.

Compared with June last year, core machinery orders were up 9.3 percent, unadjusted for seasonal factors.

The Cabinet Office said it expects core orders to fall 1.2 percent in the July-September quarter. Orders slumped 4.1 percent in the April-June period. “The capital investment trend has turned slightly downward,” Nakagaki said.

Core orders exclude those from electric power companies and those for ships, which can swing from month to month, obscuring the underlying trend.

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Category: Japan