Japan’s core machinery orders fell by probably the most in eight months in a worrying sign that international trade tensions are taking a toll on company investment, casting doubt that substantial domestic demand will help offset external pressure on the export-reliant economic system.
Any downturn in enterprise spending will hurt prospects for stronger wage growth and dampen the central bank’s hopes that a sustained financial recovery will prod corporations to boost costs and wages, serving to reach its 2% inflation aim.
Cabinet Office data on Monday confirmed that core orders, a highly volatile data series considered an indicator of capital spending within the next six to nine months, fell 7.8% in May from the previous month.
The information comes a week after the Bank of Japan’s quarterly tankan survey confirmed strong Japanese business expenditure plans, with big corporations planning to raise their capital expenditure plan by 7.4% within the fiscal year to March 2020.
The BOJ will scrutinize the tankan results and a batch of other indicators at its policy-setting assembly later this month when it issues fresh economic and price projections.
Japan’s capital expenditure has been driven by demand for boosting labor-saving technology to deal with a labor crunch within the fast-aging population, high-tech funding and upgrading old plant and equipment.