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Japan's February machinery orders rebound

But investment outlook is fragile as weakening global conditions still pose major challenges

Tokyo

JAPAN'S machinery orders posted their first monthly increase in four months in February due to improved demand from the energy and telecommunications sectors but weakening global conditions remain major challenges for the world's third-largest economy. The 1.8 per cent increase month on month in core machinery orders, an often volatile leading indicator of capital expenditure, followed a 5.4 per cent decline in January.

But the expansion was weaker than the median forecast for a 2.5 per cent increase in a Reuters poll of economists. It is also unlikely to ease concerns that companies could drastically cut business investment due to the US-Sino trade war and rising inventories of electronic parts.

Orders from manufacturers rose 3.5 per cent in February, following a 1.9 per cent month-on-month decline in January, Cabinet Office data showed on Wednesday. Orders from non-manufacturers fell 0.8 per cent month on month in February after an 8.0 per cent decline in January from the previous month.

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Of some encouragement for policymakers, machinery orders from overseas rose 19 per cent, recovering from an 18.1 per cent tumble in January. "Core" machinery orders exclude those for ships and from electricity utilities.

The US and China are trying to narrow their differences over trade but are yet to agree to a deal that would unwind punitive tariffs and restore global trade flows. Japanese manufactures rely on selling heavy machinery and electronic parts to companies in China.

Adding another source of concern for policymakers are Tokyo's own trade talks with the US expected later this month, which could potentially threaten Japan's vehicle exports to the US market. Economists say uncertainty over trade policy could discourage Japanese companies from increasing capital expenditure, which will act as a curb on economic growth.

Another risk for Japan's economy is the government's plan to raise the nationwide sales tax to 10 per cent from 8 per cent in October. The government needs the extra revenue for rising welfare costs, but the tax hike could also weaken consumer spending. REUTERS