Japan November core machinery orders stall in worrying sign over capital spending

FILE PHOTO:  A worker repairs a facility of a chemical factory at the Keihin Industrial Zone in Kawasaki
FILE PHOTO: A worker repairs a facility of a chemical factory at the Keihin Industrial Zone in Kawasaki, Japan September 12, 2018. REUTERS/Kim Kyung-Hoon

January 16, 2019

By Stanley White

TOKYO (Reuters) – Japan’s core machinery orders slowed sharply in November from October in a sign corporate capital expenditure could lose momentum as a bruising U.S.-China trade war spills into the global economy.

The slight 0.02 percent decline month-on-month in core machinery orders, considered a leading indicator of capital expenditure, was well below the median estimate for a 3.5 percent increase and marked a slowdown from a 7.6 percent expansion in October.

A trade war between the United States and China is weighing on growth in the world’s two largest economies, which threatens Japan’s growth because its exporters could delay investment and hiring due to worries about corporate profits.

Orders from manufacturers fell 6.4 percent in November from October after a 12.3 percent increase in October, due to a decline in orders from manufactures of electronics and steel.

Service-sector orders rose 2.5 percent, slower than a 4.5 percent increase the previous month. Orders from parcel delivery and logistics companies rose in November.

However, a decline in orders from construction and telecommunications companies dragged on growth in orders from the services sector.

“Core” machinery orders exclude those for ships and from electricity utilities.

Japan’s policymakers have long argued that an increase in business investment will contribute to economic growth as companies replace old manufacturing equipment and invest in new technology.

However, the chance of a growth spurt this year driven by corporate investment has dimmed because international trade tensions and slowing global growth could hurt Japan’s export-oriented economy.

The potential slowdown in business spending comes at a difficult time for Japan because the government is preparing to raise the nationwide sales tax in October, which is expected to curb consumer spending.

(Editing by Jacqueline Wong)

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