Core private-sector machinery orders fell at the fastest pace in more than five years in the April-June quarter, the government said Thursday, underscoring corporate reluctance to boost investment after the April 1 consumption tax hike.
The orders, which exclude those for ships and from utilities because of their volatility, sank a seasonally adjusted 10.4 percent from the previous quarter, falling for the first time in five quarters to ¥2.28 trillion, the Cabinet Office said.
It was the sharpest quarter-on-quarter decline in the orders — used as a leading indicator of capital spending — since the January-March quarter of 2009, when the economy was in the grips of the 2008 global financial crisis.
The 10.4 percent plummet was also the third-quickest on a quarterly basis since comparable data became available in April 2005, according to the office.
The government downgraded its basic assessment of core machinery orders for the second straight month, saying they are “moving in a seesaw manner.” It noted last month that they are at a “standstill in their growth trend.”
Prime Minister Shinzo Abe’s administration has passed measures to encourage firms to boost investment since December 2012, viewing capital spending as a pillar of economic growth necessary to overcome nearly two decades of deflation.
The tumble in machinery orders, however, may disappoint Abe, who is betting on an expansion in capital spending to shore up domestic demand and help cushion the impact from the 3-point sales tax hike to 8 percent, analysts said. Another tax hike is likely to complete its doubling to 10 percent next year.
Koya Miyamae, senior economist at SMBC Nikko Securities Inc., said Thursday’s results were “very weak.”
“Until private spending and exports are confirmed to clearly rebound, machinery orders and business investment are likely to remain on a weak note,” Miyamae said.
The Cabinet Office estimated core orders would rise 2.9 percent in the three months through September, suggesting they may not bounce back sharply.
During the April-June quarter, orders from the manufacturing sector sank 8.5 percent from the previous quarter to ¥934.3 billion, while those from nonmanufacturers slid 6.7 percent to ¥1.39 trillion.
By industry, orders from the electric machinery industry and the agricultural, forestry and fishery industries were lackluster.
A government official said receding demand to replace Windows XP, the outdated operating system still present in many personal computers, also contributed to the dive in machinery orders in the second quarter. The replacement drive was fueled by Microsoft’s termination of support for the system in early April.
Overseas demand for Japanese machinery, an indicator of future exports, skyrocketed 42.2 percent to ¥3.91 trillion on the back of an increase in big orders.
In June alone, core private-sector machinery orders rose 8.8 percent to ¥745.8 billion after a record plunge of 19.5 percent in May and a 9.1 percent drop in April, the office said.
The outcome was worse than market expectations of about a 15 percent increase.
Machinery orders and capital spending have shown little sign of growing sharply, given Japan’s current economic situation and outlook.
Japan’s economy shrank at an annualized real rate of 6.8 percent in the April-June quarter, hurt by the first consumption tax hike in 17 years. It fell at the quickest pace since Japan was hit by a triple disaster in March 2011, the government said Wednesday.
The Japan Center for Economic Research said Tuesday that Japan’s gross domestic product is forecast to rebound only by an annualized 4.1 percent in real terms in the July-September quarter, citing the average projection of 42 private-sector economists.