Japan’s weak machinery orders, other batch of soft data raise BOJ challenge

By Kantaro Komiya

TOKYO (Reuters) -Japan’s core machinery orders fell more than expected in July, as manufacturers balk at new investments in the face of sluggish global growth and weakness in major market China, pointing to a difficult period ahead for the world’s third-largest economy.

The Cabinet Office data released on Thursday comes on top of several other indicators over recent weeks that have raised the challenge for Japanese policymakers confronting soft demand overseas and at home.

Core orders, the leading indicator of Japanese business spending, were down 1.1% in July from the previous month, the data showed. The decline was bigger than a 0.9% drop expected by economists in a Reuters poll and followed a 2.7% gain in June.

“Export-reliant manufacturers are hesitant at ramping up investments in the wake of anaemic Chinese economy and Western central banks’ relentless tightening,” said Chisato Oshiba, economist at Dai-ichi Life Research Institute.

“Manufacturers are eager to invest in their production facilities, but uncertainties overseas discourage their decisions … at least through September.”

Orders from manufacturers fell 5.3% in July, the largest decline in eight months, due to weak demand for computers from industries including electric machinery, auto and chemicals. Orders from “core” service-sector firms excluding shipping and electric utilities grew 1.3%.

On a year-on-year basis, core orders, a highly volatile data series regarded as a gauge of capital spending in the coming six to nine months, contracted 13.0%, larger than a forecast for a 10.7% fall, the data showed.

The government maintained its weak view on machinery orders, saying they are “stalling”, highlighting the bumpy road ahead for Japanese business and its broader economy.

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High borrowing costs across many developed economies, with the U.S. Federal Reserve leading the charge since early last year, have hurt global growth and many trade-reliant nations such as Japan.

That has in turn made the Bank of Japan (BOJ) wary about speeding up an exit from its ultra-easy policy, a cautious stance underlined by a raft of soft economic indicators.

In July, Japan’s exports fell for the first time in nearly 2-1/2 years, while the industrial output contracted more than expected.

Confidence at big Japanese manufacturers fell the most in eight months, on worries a slowdown in China’s economy could be a bigger drag on growth globally and at home, a Reuters corporate survey for September showed on Wednesday.

Japan’s economy grew less than initially estimated in the second quarter, revised gross domestic product data showed last week, as both business and consumer spending shrank.

Japanese Prime Minister Fumio Kishida, after reshuffling his cabinet on Wednesday, said the government will support the economy by ensuring that wage growth exceeds inflation in longer-term. The administration aims to compile an economic stimulus package next month, he added.

Real wages has fallen for 16 months through to July on rising inflation, complicating the BOJ’s monetary policy outlook.

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