Japan's April machinery orders drop to six-year low amid coronavirus outbreak

Japan’s core private-sector machinery orders fell 12.0 percent in April from the previous month to the lowest level in nearly six years, government data showed Wednesday, as the nationwide coronavirus-linked state of emergency wreaked havoc on corporate activity.

The orders, which exclude those for ships and from electricity utilities due to their volatility, totaled ¥752.59 billion ($7 billion), the least since they stood at ¥720.84 billion in May 2014, according to the Cabinet Office.

The 12 percent drop in machinery orders, seen as a leading indicator of capital expenditure, was the sharpest decline since September 2018 when they sagged 16.8 percent on month. They decreased for the second consecutive month, following a 0.4 percent drop in March.

The Cabinet Office said that machinery orders are “weakening,” revising down its view for the first time in six months. The office said the orders were “stalling” under its previous assessment.

A Cabinet Office official said at a briefing that orders from makers of general machinery and transport equipment, except for those of cars and vessels, fell sharply, contributing to the overall decline.

The central government requested people to refrain from going out and for nonessential businesses to shut under a state of emergency, initially issued on April 7 for Tokyo and six other areas and expanded nationwide about a week later.

Factories were forced to suspend operations under the emergency declaration, which was removed for 39 of the country’s 47 prefectures on May 14, and fully lifted by May 25 following a fall in the number of new COVID-19 cases.

Takeshi Minami, chief economist at the Norinchukin Research Institute, said that companies were cautious about spending on new projects under the state of emergency.

“Although the emergency state was lifted in stages, the prospect of companies’ sales recovering remains slim (for the time being), and machinery orders will remain low even after bottoming out, with the lasting cash flow problem,” Minami said.

In the reporting month, orders from manufacturers inched down 2.6 percent to ¥334.18 billion, while those from nonmanufacturers, excluding those for ships and from electricity utilities, plummeted 20.2 percent to ¥406.33 billion, the steepest drop since comparable data became available in April 2005.

Total orders decreased 8.3 percent to ¥2.10 trillion. Orders from overseas, seen as an indicator of future exports, dropped 21.6 percent to ¥689.45 billion.