Surprise Drop in Japan Machinery Orders Stokes Worry on Capital Spending

Japan
FILE PHOTO: Smoke rises from a factory during the sunset at Keihin industrial zone in Kawasaki, Japan, January 16, 2017. REUTERS/Toru Hanai

TOKYO ⸺ Japan’s core machinery orders unexpectedly declined in February for a second straight month, government data showed, dashing hopes for a pick-up in capital expenditure needed for a private sector-led recovery from the coronavirus-induced slump.

Policymakers are counting on companies to spend their huge cash piles on investment in plant and equipment and wage hikes to help pull the world’s third-largest economy out of deflation and stagnation.

However, many companies tend to hoard cash as their appetite for investment has waned amid the state of emergency in big cities and worries over a fourth wave of coronavirus infections. 

The Cabinet Office data on Wednesday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 8.5% in February from the previous month.

A Reuters poll of economists had predicted 2.8% growth, following a 4.5% drop in January.

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By sector, manufacturers’ orders declined 5.5% in February from the prior month, while those from non-manufacturers also decreased 10.9%, the data showed.

Many economists have forecast a contraction in economic growth in the first quarter as COVID restrictions hampered service-sector activity, such as hotels and restaurants, keeping companies from boosting investment.

The Cabinet Office cut its assessment on machinery orders to say a pick-up is stalling.

Underscoring solid overseas demand, external orders, which are not counted as core machinery orders, jumped 76.2% month-on-month in February, helped by a big ticket item that gave a one-off boost, a Cabinet Office official said.

Compared with a year earlier, core orders, which exclude those for ships and electric utilities, declined 7.1% in February, versus a 2.3% gain predicted by economists.

Reporting by Tetsushi Kajimoto; Editing by Jacqueline Wong; Reuters

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