Economy

Japan machinery orders post biggest drop in 6 months in blow to business spending

Japan machinery orders post biggest drop in 6 months in blow to business spending

Written by Daniel Losink and Tetsushi Kajimoto

TOKYO (Reuters) – Japanese machinery orders posted their biggest one-month drop in six months in August, amid pressures from the global economic slowdown and a weak yen that drove up import costs and clouded business spending expectations.

A Reuters Tankan survey showed separately that business confidence in major manufacturers fell to a five-month low, as the double whammy of inflation and slowing global growth hit the trade-dependent economy.

Cabinet Office data showed that core orders, a highly volatile data series considered a gauge of capital spending in the next six to nine months, fell 5.8% in August from the previous month.

That represented the biggest month-on-month decline since a 9.8% drop in February, and was weaker than the median forecast of a 2.3% drop by economists in a Reuters poll.

โ€œAlthough ‘core’ machinery orders fell sharply in August due to the collapse in non-manufacturing orders, the third-quarter average still indicated an expansion in non-residential investment growth,” said Darren Tai, Japan economist at Capital Economics.

“What’s important is that the average third-quarter machine orders are so far 1% stronger” than the average second-quarter orders.

By sector, a 21.4% drop in non-manufacturer orders led to a lower headline reading. The data showed that this was largely due to the transportation and postal sub-sector reversing the previous month’s gains.

Orders from manufacturers rose 10.2% from the previous month, buoyed by high volume demand for a nuclear engine in the non-ferrous metals sub-sector.

The survey indicated a slowdown in global growth. Outside orders fell 18.9% in their biggest decline since March 2021 and the fourth consecutive month of declines, highlighting growing concerns about the external environment.

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“Capital goods makers have so far benefited from external demand, but the momentum is weakening due to the impact of the economic slowdown abroad,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“If the overseas slowdown becomes a real problem, companies may scrap their capital spending plans,” he said, stressing risks to the outlook despite the company’s spending in the first six months of the fiscal year that began in April.

The data found that compared to a year earlier, core orders, which exclude volatile numbers from freight and electricity utilities, rose 9.7% in August.

In a Reuters Tankan survey, the manufacturer’s sentiment index fell to 5 in October from 10 last month as monetary tightening around the world and the yen’s recent slide to a 24-year low against the dollar hurt business sentiment.

The world’s third-largest economy has managed to expand at a relatively solid pace so far this year, posting 3.5% annual growth in the second quarter as private spending rebounded after the government lifted domestic COVID-19 restrictions.

But it faces risks from an economic slowdown in Asia and the United States, hampering prospects for a stronger recovery and making businesses and consumers more cautious at home.

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