Core machinery orders edged up 1.3 percent from a month earlier to ¥788.0 billion in November, the government said Thursday, a weak figure that suggests companies are reluctant to boost investment as the yen sinks and import costs rise, and one that caused it to downgrade its outlook.
Private-sector orders, excluding those for ships and from utilities because of their volatility, rose after a seasonally adjusted 6.4 percent fall in October and a 2.9 percent gain in September, the Cabinet Office said.
But the government downgraded its basic assessment of core machinery orders for the first time in five months, saying they are at a “standstill in their pickup trend.” Last month it said they were showing “signs of a gradual pickup.”
Core machinery orders are a leading indicator of capital spending. The figures are closely watched because Prime Minister Shinzo Abe views business investment — which accounts for around 15 percent of gross domestic product — a pillar of growth and one needed to beat nearly two decades of deflation.
The yen’s rapid weakening late last year, triggered by the Bank of Japan’s radical monetary easing program, drove up costs for imported raw materials, worsening the terms of trade and making the corporate sector shy away from capital spending, analysts say.
The yen plunged against the dollar by 16.2 percent year-on-year in November to an average of ¥116.22, and against the euro by 7.5 percent to ¥145.09, according to data released Tuesday by the Finance Ministry.
Rising import costs have dealt a heavy blow to importers and other firms at home, in particular small- and midsize enterprises, as Japan depends on imports for more than 90 percent of its energy resources.
But Koya Miyamae, senior economist at SMBC Nikko Securities Inc., said capital spending may recover moderately, given that a recent plummet in global crude oil prices is expected to shore up business confidence in Japan.
“A downturn in crude oil prices is likely to push up corporate income, which would help bolster domestic demand,” Miyamae said.
The benchmark contract for Brent crude oil futures has sunk by over 50 percent from a peak of about $110 in June.
Other economists said Japan’s long-term interest rates, expected to stay at historical lows for the time being on the back of the BOJ’s massive bond-buying program, are likely improving the fundraising environment and stimulating corporate spending.
The yield on the benchmark 10-year Japanese government bond has been marking record lows, briefly sliding to 0.245 percent Thursday morning.
In November, orders from the manufacturing sector fell 7.0 percent to ¥319.8 billion, while those from nonmanufacturers eked out a 0.5 percent increase to ¥444.9 billion.
By industry, declining orders from the chemical sector and the information and telecommunication device industry contributed to pulling down the total for manufacturers, while orders from the transport and postal service sector were a drag on nonmanufacturers.
Total orders, including those from the domestic public sector and abroad, sank 10.4 percent to ¥2.02 trillion.
Overseas demand for Japanese machinery, an indicator of future exports, declined for the third straight month, down 6.0 percent to ¥856.2 billion.