Japan machinery orders post biggest drop in 6 months, hitting business spending

  • August Major Orders -5.8% m/m, below f’cast
  • Core orders +9.7% y/y vs f’cast +12.6%
  • Manufacturing sentiment falls m/m in October – Reuters Tankan

TOKYO, Oct 12 (Reuters) – Machinery orders in Japan posted their biggest one-month drop in six months in August, pressure from a global economic slowdown and a weaker yen pushing up import costs cloud the outlook for business spending.

The Reuters Tankan survey separately showed that business confidence in major manufacturers fell to its lowest level in five months as the double whammy of inflation and slowing global growth hurt the economy dependent on trade.

Core orders, a highly volatile data series seen as the barometer of capital spending over the next six to nine months, fell 5.8% in August from the previous month, Cabinet Office data shows. .

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That marked the biggest month-on-month decline since a 9.8% drop in February and was weaker than the median forecast of a 2.3% drop by economists in a Reuters poll.

“Although ‘core’ machinery orders fell sharply in August due to a slump in non-manufacturing orders, the third-quarter average still points to an expansion in non-residential investment growth,” said Darren Tay, Japanese economist at Capital Economics.

“Crucially, Q3 average machine orders are 1% higher so far” than Q2.

By sector, a 21.4% drop in non-manufacturing orders sent headlines tumbling. This was largely because the transportation and postal subsector reversed gains from the previous month, the data showed.

Manufacturers’ orders were up 10.2% from the previous month, driven by a large order for a nuclear engine in the non-ferrous metals subsector.

The survey indicates a slowdown in global growth. Overseas orders fell 18.9% for their steepest fall since March 2021 and the fourth consecutive month of decline, underscoring growing concerns about the external environment.

“Capital goods makers have so far benefited from overseas demand, but the momentum is weakening due to the impact of the economic slowdown overseas,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“If the overseas slowdown becomes a real problem, companies could end their capital spending plans,” he said, pointing to risks to the outlook despite firm spending in the first half of the year. exercise which began in April.

Compared with a year earlier, base orders, which exclude volatile shipping and electric utility numbers, rose 9.7% in August, the data showed.

In the Reuters Tankan survey, the manufacturing confidence index slipped to 5 in October from 10 last month as monetary tightening around the world and the recent drop in the yen to a 24-year low against the dollar have damaged business confidence.

The world’s third-largest economy has managed to grow at a relatively strong pace so far this year, with annualized growth of 3.5% in the second quarter, as private spending picked up after the government lifted local restrictions linked to the COVID-19.

But it faces risks from an economic slowdown in Asia and the United States, which is clouding prospects for a stronger recovery and making businesses and consumers more cautious at home.

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Reporting by Daniel Leussink and Tetsushi Kajimoto Editing by Shri Navaratnam

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