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Sunday, 10 November 2019

Japan’s surprise decline in machinery orders raises doubts about business spending

November 11, 2019

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s machinery orders fell for a third straight month in September, raising doubts that business spending will be strong enough to offset external pressures, which have clouded the outlook for the export-reliant economy.

Capital spending has been a bright spot for the world’s third-largest economy, driven by refurbishing of aged infrastructure, urban development, automation and investments to cope with a labor crunch in the rapidly ageing population.

Policymakers are counting on solid capital expenditure and domestic demand to prop up growth amid the U.S.-China trade war, a broader global slowdown and the impact from last month’s sales tax hike.

Core machinery orders fell 2.9% in September from the previous month, down for a third straight month and dashing expectations for a 0.9% increase in a Reuters poll, Cabinet Office data showed on Monday.

The core machinery orders data is a highly volatile series but regarded as a key indicator of capital spending.

Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 3.5% in October-December, after a 3.5% decrease in the previous quarter.

Data on Thursday is likely to show Japan’s economic growth slowed to an annualized 0.8% in July-September from 1.3% in the second quarter, a Reuters poll found last week.

The capital spending component of GDP likely rose 0.9% quarter-on-quarter in July-September after a 0.2% gain in April-June.

The Cabinet Office cut its assessment, saying a pick-up is seen stalling in machinery orders.

Compared with a year earlier, core orders, which exclude those of ships and electricity, grew 5.1% in September, versus a 7.9% year-on-year gain seen by economists in a Reuters poll, the Cabinet Office data showed.

Prime Minister Shin Abe on Friday ordered his cabinet to compile a package of stimulus measures to cope with external risks and large natural disasters, and prepare against a potential economic slump after the 2020 Tokyo Olympics.

Recent data, including retail sales and household spending, suggested consumers went on a last-minute shopping spree in September to beat the sales tax hike to 10%, raising some worries about a subsequent pullback in demand.

Policymakers have argued that the economy would likely avoid a repeat of the previous tax hike from 5% in April 2014 that caused a big downward swing in the economy.

(Reporting by Tetsushi Kajimoto; Editing by Sam Holmes)

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