Japan’s core machinery orders fell in April from the previous month, down for the first time in three months as companies remain hesitant to boost capital spending despite Prime Minister Shinzo Abe’s sweeping stimulus policies.
Cabinet Office data showed core machinery orders, a highly volatile series regarded as a leading indicator of capital spending, fell 8.8 per cent, compared with a 8.5 per cent decline in a Reuters poll of analysts.
That followed a 14.2 per cent increase in March, which was the fastest pace of gain in comparable data going back to 2005.
Sluggish capital spending poses a challenge to Abe’s efforts to pull the world’s third biggest economy out of nearly two decades of deflation and stagnation, with the “Abenomics” policy prescription of big spending and aggressive monetary easing.
“The yen has weakened somewhat, but companies are not convinced that this will continue and that Japan’s domestic demand will pick up,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.
“This is not something that Abe can change easily with his economic policies or with monetary easing. Abe is talking about tax breaks, but this is not likely to be large enough to stimulate capex.”
Compared with a year earlier, core orders, which exclude volatile ships and electricity, fell 1.1 per cent in April, against economists’ median forecast for a 4.8 per cent fall.
The indicator comes a day after the Bank of Japan kept monetary policy steady on Tuesday and held off taking fresh steps to calm bond market volatility, possibly judging that recent market turbulence has yet to pose a significant risk to the economy’s recovery prospects.
Separate data from the BOJ showed Japanese wholesale prices rose 0.6 per cent in the year to May, matching the median estimate and following a flat reading in the previous month.
Japan’s economy grew at an annualised 4.1 per cent rate in the first quarter, better than that of the United States, underlining a steady recovery on a pickup in global demand and Abe’s bold stimulus policies.
However, companies have been reluctant to increase spending on plant and equipment. Revised GDP data showed on Monday that
corporate investment fell 0.3 per cent from the previous quarter, marking a fifth straight quarter of declines.
Still, analysts expect business investment to pick up gradually as the economy continues to recover on the back of the government’s stimulus drive and a pickup in global demand.
Abe said this week that the government would decide on tax cuts in autumn to encourage companies to boost capital spending, saying that he would lay out the second part of his growth strategy after an upper house election on July 21.
Abe made the announcement on tax cuts after his growth strategy failed to impress investors seeking bolder reforms including corporate tax cuts and higher labour mobility.