Japan’s surprise decline in machinery orders raises doubts about business spending

12-Nov-2019 Intellasia | Reuters | 6:02 AM Print This Post

Japan’s machinery orders fell for a third straight month in September, raising doubts that business spending will be strong enough to offset external pressures, which have clouded the outlook for the export-reliant economy.

Capital spending has been a bright spot for the world’s third-largest economy, driven by refurbishing of aged infrastructure, urban development, automation and investments to cope with a labour crunch in the rapidly ageing population.

Policymakers are counting on solid capital expenditure and domestic demand to prop up growth amid the US-China trade war, a broader global slowdown and the impact from last month’s sales tax hike.

Core machinery orders fell 2.9 percent in September from the previous month, down for a third straight month and dashing expectations for a 0.9 percent increase in a Reuters poll, Cabinet Office data showed on Monday.

“The continued fall in machinery orders suggests that the recent strength in capital goods shipments won’t last,” said Marcel Thieliant, senior Japan economist at Capital Economics. “Firms have scaled back their investment spending plans as capacity shortages have diminished.”

The core machinery orders data, which exclude those from shipbuilders and power utilities, is a highly volatile series but regarded as a key indicator of capital spending.

By sector, manufacturers’ orders dropped 5.2%, dragged down by non-ferrous metals and transport machinery, while the service sector grew 2.6%, led by information and communications.

Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 3.5 percent in October-December, after a 3.5 percent decrease in the previous quarter.

Data on Thursday is likely to show Japan’s economic growth slowed to an annualised 0.8 percent in July-September from 1.3 percent in the second quarter, a Reuters poll found last week.

The capital spending component of GDP likely rose 0.9 percent quarter-on-quarter in July-September after a 0.2 percent gain in April-June.

The Cabinet Office cut its assessment, saying a pick-up is seen stalling in machinery orders.

Prime minister Shin Abe on Friday ordered his cabinet to compile a package of stimulus measures to cope with external risks and large natural disasters, and prepare against a potential economic slump after the 2020 Tokyo Olympics.



Category: Japan

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