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Aug 10, 2017 09:48 AM IST | Source: Reuters

Japan's June core machinery orders unexpectedly fall

Core orders suffered a second straight quarter of declines in April-June, the first instance of consecutive quarterly falls since 2012. This casts doubt on policymakers' optimism that brightening business sentiment will drive up capital expenditure ahead.

Japan's June core machinery orders unexpectedly fall
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Japan's core machinery orders unexpectedly fell for a third consecutive month in June, underscoring companies' reluctance to boost spending and conflicting with recent signs that the economic recovery is gathering momentum.

Core orders suffered a second straight quarter of declines in April-June, the first instance of consecutive quarterly falls since 2012. This casts doubt on policymakers' optimism that brightening business sentiment will drive up capital expenditure ahead.

While analysts warn against reading too much into the highly volatile series, the June fall offers a negative note ahead of Monday's second-quarter gross domestic product (GDP) data that is expected to show a solid growth recovery, driven by robust domestic demand.

Core orders, regarded as an indicator of capital spending in the coming six to nine months, decreased 1.9 percent in June from the previous month, confounding a median market forecast for a 3.7 percent increase, Cabinet Office data showed on Thursday.

It followed a 3.6 percent tumble in May that prompted the government to cut its assessment on machinery orders.

Companies surveyed by the Cabinet Office forecast that core orders would rise 7.0 pct in the July-September quarter.

"The third-quarter outlook for manufacturers' orders isn't bad," said a government official who briefed reporters on the data. "Orders will likely be steady. But it's hard to see a large increase."

Core orders fell 4.7 percent in April-June from the previous quarter, the biggest quarterly decline in a year. The first quarter had a 1.4 percent drop.

INFRASTRUCTURE DEMAND

Some analysts say capital expenditure remains in an uptrend, citing infrastructure demand for the 2020 Tokyo Olympic Games and the need for companies to spend on equipment to streamline operations amid intensifying labour shortages.

"Real interest rates are kept negative by the BOJ's monetary policy so funding constraints are small. There's no change to our view capital expenditure will increase in the medium-term," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Robust global demand has boosted Japanese business confidence to a three-year high in the there months to June, heightening policymakers' hopes that cautious companies will finally increase spending on plant and equipment.

A sustained economic recovery would help the Bank of Japan's efforts to stamp out persistent deflation, though wages and inflation remain stubbornly low despite recent signs of rebounding private consumption.

Japan's economy expanded an annualised 1.0 percent in the first quarter on robust exports.

Data due on Monday is likely to show the economy grew for a sixth straight quarter in April-June, a Reuters poll showed, buoyed by robust consumer spending and corporate capital investment.

The machinery orders figures do not directly affect GDP data as the government uses other indicators to calculate the capital investment component of GDP.
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