Core private-sector machinery orders plunged a seasonally adjusted 14.4 percent in November from the previous month for the first drop in three months, the government said Thursday. The trend reflects continued caution by firms over making capital investments.
The orders, widely regarded as a leading indicator of future capital spending, totaled ¥773.8 billion. The orders exclude those for ships and from utilities because of their volatility.
The weak outcome may highlight nervousness among businesses toward fresh investment amid persistent concern about a slowdown in China, one of the biggest destinations for Japanese exports. The size of the fall was the third-largest since comparable data became available in April 2005, the Cabinet Office said.
Despite the sharp decline, the government left unchanged its basic assessment of core machinery orders, saying they are showing “signs of picking up.”
The large drop is partly attributable to a reaction to sharp increases in the previous two months, but corporate sentiment has been dampened by worries about the Chinese economy as well as plunges in crude oil and other commodity prices, economists said.
Miyuki Kiso, market economist at Mizuho Securities Co., said there are also doubts about whether the strength of the U.S. economy will persist, at a time when the prospects of the European economy remain uncertain.
“Cheap oil prices have some positive aspects to the Japanese economy, but they are caused by weakening demand in the global economy,” Kiso said, adding that flagging demand would lead to a cutback in production.
The figures are closely watched as Prime Minister Shinzo Abe’s government sees business investment — which accounts for around 15 percent of Japan’s gross domestic product — as a pillar of economic growth led by the private sector.
“Though the government encourages firms to boost investment with political measures, capital spending will not expand if there is no demand,” Kiso said.
Orders from the manufacturing sector dropped 10.2 percent to ¥338.3 billion in November after a 14.5 percent gain in October, while those from the nonmanufacturing sector shed 18.0 percent to ¥437.9 billion.
Total orders, including those from the domestic public sector and abroad, plunged 23.2 percent to ¥2.15 trillion.
Overseas demand for Japanese machinery, an indicator of future exports, slid 25 percent to ¥970.0 billion following a 41.6 percent surge in October.