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Japan's March core machinery orders disappoint, underscore fragile recovery
May 17, 2017 / 12:01 AM / 7 months ago

Japan's March core machinery orders disappoint, underscore fragile recovery

TOKYO (Reuters) - Japan’s core machinery orders fell short of expectations in March from the previous month and companies forecast a decline in investment over April-June, underscoring the fragile nature of the country’s export-driven economic recovery.

FILE PHOTO: Excavators are seen at a construction site in Tokyo, Japan June 8, 2016. REUTERS/Toru Hanai/File Photo

But analysts say the data, considered as highly volatile, does not signal any major change in a moderate but broad-based uptrend in capital expenditure in a recovering economy.

Core orders, regarded as a leading indicator of capital spending in the coming six to nine months, rose 1.4 percent in March from the previous month, Cabinet Office data showed on Wednesday. The outcome marked a second straight rising month but undershot the median market forecast for a 2.1 percent gain.

Companies surveyed by the Cabinet Office forecast that core orders, which exclude those for ships and from electric power utilities, would fall 5.9 percent in the April-June period following a 1.4 percent drop in the first quarter.

The weak outlook suggests some companies may be turning cautious on investing because of uncertainty about the possible impact of U.S. President Donald Trump’s protectionist policies on export-reliant Japan.

“Uncertainty in the global economy, Trump’s protectionist policies and the political situation in Europe all came together to produce a weak result,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Machinery export orders fell 2.8 percent in March to mark a second consecutive declining month, reflecting weak overseas demand for industrial, electronic and communications equipment.

FILE PHOTO: An engineer makes an arm rail for residential buildings inside a metal processing factory at an industrial zone in downtown Tokyo, Japan, March 22, 2016. REUTERS/Yuya Shino

But many analysts, including Minami, warned against reading too much into the temporary weakness in orders, pointing to prospects of recovery in global demand and business morale.

“The March result was weaker than expected but it’s not that bad,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“The global economy is recovering, business sentiment is improving...I don’t think the underlying trend has changed.”

The Cabinet Office maintained its assessment of the indicator, saying the pick-up in machinery orders was stalling.

Japan’s economy has shown signs of life with exports and factory output benefiting from a pick-up in global demand.

Policymakers hope that companies will use some of their profits to boost wages and capital expenditure, helping to sustain a moderate recovery.

Data due out on Thursday is expected to show the economy expanded for a fifth straight quarter in January-March, according to a Reuters poll.

Reporting by Minami Funakoshi; Editing by Eric Meijer

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