Core private-sector machinery orders in July rose 3.5 percent from the previous month to ¥771.7 billion after seasonal adjustment, led by a one-off increase in big orders from the chemical industry, the government said Wednesday.
Core orders, or private-sector orders excluding those for ships and power equipment, are regarded as a leading indicator of business investment, which Prime Minister Shinzo Abe has seen as a key component of his plan to revitalize the economy and end nearly two decades of deflation.
The figures for July follow an 8.8 percent climb in core orders the previous month but come on the back of a record plunge of 19.5 percent in May and 9.1 percent drop in April, indicating that the overall pace of recovery is slowing.
If corporate capital spending becomes more sluggish, pressure will grow on the Bank of Japan to implement additional monetary easing steps in the near future, as the consumption tax hike to 8 percent from 5 percent in April has already dampened demand, some analysts said.
“More companies have started to share the view” that the impact of the first consumption tax increase in 17 years has been bigger than initially forecast, said Takeshi Minami, chief economist at the Norinchukin Research Institute.
As long as private spending remains lethargic and export growth is weak, many firms are likely to “reduce or defer their investment plans,” Minami added.
Capital spending accounts for around 15 percent of Japan’s gross domestic product, and there is little indication of it making a strong rebound anytime soon, while the general economic outlook remains bleak.
Business investment dropped 5.1 percent during the April-June period from the previous quarter, sliding at its fastest pace in five years and registering the first decrease in five quarters, according to GDP data released by the government Monday.
Other experts, however, say the recent depreciation of the yen could help improve the profitability of exporters, possibly prompting the corporate sector to bolster capital spending as fears of a severe economic downturn recede.
A falling yen usually supports exports by making Japanese firms’ products cheaper abroad. It also increases the value of overseas revenue in yen terms.
The currency has been on a downward trend against its major counterparts, with the dollar trading at its highest level against the yen in nearly six years.
In July, the Cabinet Office kept its basic assessment of core machinery orders intact, saying they are “moving in a seesaw manner.”
In July, orders from the manufacturing sector gained 20.3 percent to reach ¥363.9 billion, up for the second straight month, while those from nonmanufacturers declined 4.3 percent to ¥425 billion.
Total orders, including those from the domestic public sector and abroad, fell 13.5 percent to ¥2201.3 billion.
Meanwhile, overseas demand for Japanese machinery — an indicator of future exports — plummeted 42.6 percent to ¥816.9 billion after surging 62.8 percent in June, suggesting that sales to other nations are unlikely to expand sharply.
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