TOKYO: Japan’s core machinery orders unexpectedly fell for a second straight month in May, government data showed, stoking worries about capital spending and the sustainable recovery needed for the Bank of Japan (BoJ) to raise interest rates.
The volatile leading indicator of capital spending fell 3.2% month-on-month in May, following a 2.9% drop in April and confounding analysts in a Reuters poll calling for a 0.8% increase.
The decline in machinery orders may be a bad omen for the BoJ’s plans to normalise monetary policy as it has embarked on unwinding its unconventional policy. It raised rates in March for the first time since 2007 and decided in June to cut government debt purchases.
The Cabinet Office, which compiles the data, cut its view on machinery orders, saying there are signs a pick-up is stalling. It marked the first downgrade in the assessment since the start of this year.
The core orders exclude ship buildings and repairs as well as electricity power generation, both of which tend to be more volatile. Orders from overseas are also not counted as core orders but are categorised as external orders.
Core orders account for around one-third of the overall machinery orders, and external orders make up around 40%.
Orders from overseas jumped 9.1% month-on-month in May and 20.9% from the same month a year earlier.
By sector, manufacturers’ orders rose 1%, and non-manufacturers fell 7.5% partly because of the loss of demand in the communications industry for items such as computers, the Cabinet Office data showed.
Orders for chip-making machinery helped to drive up the numbers for the manufacturers.
Compared with a year earlier, core orders, regarded as an indicator of capital spending for the coming six to nine months, increased 10.8% in May.
A Cabinet office survey showed core orders grew 4.4% in January to March from the previous quarter, but were expected to fall 1.6% in the second quarter.
Capital spending is one of the few bright spots in Japan due to demand for labour-saving technology to cope with a labour crunch. The government is aiming for domestic investment, including research and development, to top 100 trillion yen by fiscal year 2027.
Gross domestic product data showed earlier this month that private non-residential investment fell 0.4% from January to March, making capital spending and consumption the major culprits behind a sharper than expected economic contraction. — Reuters
