The value of Japan's core private-sector machinery orders, a leading indicator of capital spending, hit a record low in May as the services sector scaled back spending in the face of weak domestic demand.
Bank lending slowed from a record pace in June, separate data showed today, partly reflecting an improvement in credit conditions as well as less demand from companies to borrow and invest in capital goods.
Capital spending will likely struggle to recover as doubts about the strength of demand both domestically and abroad mean Japanese companies lack the confidence to boost their spending.
The data also suggests that the Bank of Japan could extend measures to support corporate finance beyond their scheduled expiry in September.
“Capital spending will not stop falling until the final quarter of this year,” said Azusa Kato, an economist at BNP Paribas.
“Orders from non-manufacturers were weak, reflecting concerns over domestic demand. For manufacturers perhaps the worst is over, but exports are unlikely to recover quickly as they did in the previous boom. The BOJ will basically extend corporate funding measures beyond September.”
Japan's core private-sector machinery orders fell 3 per cent in May from the previous month to 668.2 billion yen ($7.05 billion), the lowest level in comparable data going back to April 1987, the Cabinet Office said today. The median market forecast was for a rise of 2.1 per cent.
Core orders, which exclude those for ships and machinery at electric power firms, fell 38.3 per cent in May from a year earlier.
Orders from the manufacturing sector are showing signs of stabilising, but it may be a while before that translates into higher capital expenditure, a government official said.
Weakness in the economy is also spreading to the services sector, so the government left unchanged its assessment that the pace of decline in machinery orders is slowing, the official said.
Manufacturers increased orders by 5.4 per cent, the first rise in two months, as car makers, petroleum refiners and general machinery makers raised orders.
Orders from non-manufacturers fell 6.9 per cent from the previous month, the third consecutive month of declines, as shipping and insurance companies and the financial sector cut orders, according to the data.
In reaction to the data, 10-year Japanese government bond futures jumped to 138.70, the highest in more than three months, before trading at 138.67, up 0.20 point on the day. The Nikkei average slid 1.8 per cent.
Other data released today showed the balance of outstanding loans held by Japanese banks rose 2.4 per cent in June from a year earlier, slowing further from a record gain in January as credit conditions eased.
Reuters