Japan's core machinery orders fall, causing worry

TOKYO • Japan's core machinery orders tumbled in April, partly due to earthquakes in the southern manufacturing hub of Kumamoto, but economists worry this is a sign that business investment will remain weak for most of this year.

The 11 per cent fall in core orders was more than the median estimate for a 2.3 per cent decline in a Reuters poll of analysts. In March, core orders rose 5.5 per cent.

Any further delays in capital expenditure raises the stakes for Prime Minister Shinzo Abe's government, which will announce more stimulus measures this year in a bid to recharge a largely disappointing economic campaign.

"This is a result of the Kumamoto earthquakes, but China's economic slowdown is also having a negative impact," said UBS Securities economist Daiju Aoki.

"Capex (capital expenditure) fell in the first quarter. The second quarter looks weak and this could extend into the third quarter. This will affect the size of government stimulus and monetary easing."

The April quake in southern Japan caused landslides and halted production at electronics and car parts factories.

Many companies were able to quickly resume production, but the April machinery orders data suggests the damage to business investment was deeper than expected, economists said.

Compared with a year earlier, core orders, a highly volatile data series regarded as a leading indicator of capital spending, fell 8.2 per cent in April, more than a median estimate for a 2.3 per cent annual fall.

Meanwhile, Fitch yesterday cut its outlook for Japan, citing Tokyo's decision to postpone a sales tax hike seen as critical to paying down one of the world's biggest national debts.

The ratings company said it was changing its view to negative from stable but left Japan's "A" credit rating unchanged, after downgrading the heavily indebted country last year.

Delaying the tax rise undermined Japan's commitment to paying a debt mountain that has grown to more than twice the size of an economy, Fitch said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 14, 2016, with the headline 'Japan's core machinery orders fall, causing worry'. Print Edition | Subscribe