Japan Machine Orders Fall by Record in Spending Caution Sign

Japan’s machinery orders fell the most on record in May, suggesting that companies remain cautious about deploying record cash reserves into investment.

Core orders, a leading indicator of capital spending, dropped 19.5 percent from April, the Cabinet Office said today in Tokyo. The slide, the biggest in data back to 1987, was larger than forecast by all 23 economists surveyed by Bloomberg News. The median projection was for a 0.7 percent gain.

Today’s data highlight the difficulty for Prime Minister Shinzo Abe in steering the world’s third-largest economy through the aftermath of a sales-tax increase in April. Abe needs companies to pour some of their 232 trillion yen ($2.3 trillion) cash stockpile into investments that could strengthen a recovery and spur inflation.

“While this a very volatile indicator, today’s figure is still ugly,” said Hiroshi Shiraishi, senior economist at BNP Paribas SA in Tokyo. “It will take a while for Japan to achieve a self-sustained recovery as consumer spending will slow on the sales-tax hike, exports are weak and capital spending is only gradually recovering.”

The Topix (TPX) index of stocks swung between gains and losses after three days of declines, sliding 0.3 percent as of 10:31 a.m. in Tokyo. The yen strengthened 0.1 percent against the dollar to 101.53.

The government downgraded its assessment of machine orders. The slide in May was largely due to a 46 percent drop in external orders after a 71 percent gain the previous month, a government official said.

The number of large orders, which can cause volatile results, fell to two in May from four in April, the government said.

Large companies across all industries plan to raise capital spending 7.4 percent this fiscal year through March, a Bank of Japan report showed this month.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Chikako Mogi in Tokyo at cmogi@bloomberg.net

To contact the editors responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net Andy Sharp, Rina Chandran

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