Persistent pressure on businesses and on the economy as firms struggle to recover from the impact of the pandemic, likely led Japan’s core machinery orders to fall below expectations.
On Wednesday, the Cabinet Office data showed core orders fell 2.4% in August from July. Results were dragged down by the biggest decline in orders from manufacturers in more than five years. Core orders is a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months.
The contraction compared with the 0.9% rise in July, while a poll of economists had forecast a growth of 1.7%.
The Japanese government downgraded its assessment on machinery orders for the first time in six months. It said a recovery in the series appeared to be stalling.
Masato Koike, an economist at Dai-ichi Life Research Institute said, the picture has been ‘solid manufacturers and weak non-manufacturers’ so far, but the gap is narrowing.
The export-oriented manufacturing sector faces challenges from a global economic slowdown to supply chain bottlenecks. Service-oriented non-manufacturers, Koike added, have a clearer path to recovery as the domestic COVID-19 situation improves.
The orders data was released about a week following the inauguration of new Prime Minister Fumio Kishida.
Japanese firms have so far helped the economy’s recovery through solid output. But the outlook for exports and capital expenditure points to a bumpy ride.
Japan Manufacturers’ Mood Drops
Japanese manufacturers were less optimistic about business conditions. But the service-sector outlook improved to a level not seen since the start of the coronavirus pandemic, a poll for October showed.
Manufacturers were the least positive in six months while the service-sector mood remained in contraction. Japan’s economy is suffering from a global chip shortage and surging costs of raw materials.
The monthly poll found confidence was likely to stay positive for manufacturers. Moreover, it was likely to rise sharply for non-manufacturers over the coming three months. The poll tracks the Bank of Japan’s (BOJ) closely watched tankan quarterly survey.
It showed some firms struggling to recover, while others were benefiting from strong global demand. The poll, which was of 503 big and mid-sized companies, was conducted from Sept. 29 to Oct. 8, of which 267 responded.
A manager at a precision machinery maker said while business hasn’t returned to what it was before the coronavirus, the worst of the pandemic is over and conditions are on a recovery trend.