Japan's core private-sector machinery orders slid unexpectedly in April, suggesting firms are not confident that a bounce in industrial output and exports will be sustained enough to resume capital investment.
Despite growing signs that the worst of the global economic crisis may be over, core orders are still running one-third lower than a year earlier and April's 5.4 per cent slide provides further evidence that any economic recovery will be slow.
Adding to deflationary pressures, a 5.4 per cent tumble in wholesale prices in the year to May - the biggest annual fall in 22 years - showed weak demand was increasingly a problem.
But the data was not completely downbeat, with an improvement in orders from electronic machinery and auto makers offering signs that some sectors were becoming less pessimistic.
“The orders data doesn't undermine the view that Japan's economy has bottomed out and exports are showing signs of recovery,” said Chotaro Morita, chief fixed-income strategist for Barclays Capital in Japan.
“But given that capital spending will likely remain low due to oversupply and a cautious corporate outlook for investment, the orders data suggests that the economic cycle of exports leading to production, spurring investment and consumption may be weaker this time than usual.”
The decline in April from March was the second straight month of falls and the figure was weaker than a median market forecast for a 0.4 per cent rise. The series is a very volatile leading indicator of capital spending. Core orders exclude ships and utility purchases.
Japanese factories are running at just over 60 per cent of production capacity, compared with levels above 100 per cent before the collapse of US investment bank Lehman Brothers jolted global financial markets in September.
April orders for manufacturers tumbled 9.4 per cent, though that was largely due to drops in orders from sectors that logged big gains in March such as general machinery and chemical makers.
“The headline numbers are weak for April, but in terms of the outlook there are signs of improvement in electronic machinery and also, although still small, in motor vehicles,” said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.
“The outlook should improve gradually from May.”
Non-manufacturers were more gloomy, with firms in the transport, telecoms and finance sectors ordering less equipment, further evidence that damage from the recession was broadening.
Tokyo stocks shrugged off the weak data, with the Nikkei average hitting an eight-month closing high on hopes for a global economic recovery. Shares in Komatsu Ltd, the world's second-largest maker of earth-moving equipment, also rose despite the data.
Reuters