Japanese machinery orders in February fall for second month, adding to fears for growth

A factory area is seen in front of Mount Fuji in Yokohama, Japan January 16, 2017. Picture taken January 16, 2017. REUTERS/Kim Kyung-Hoon

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  • February Base Orders -9.8% m/m vs f’cast -1.5%
  • Services orders -14.4%, manufacturing orders -1.8%
  • Orders from computer companies -36.9%, the largest drop since January 2006
  • Soaring costs fear to chill investment, Japan’s growth

TOKYO, April 13 (Reuters) – Japan’s basic machinery orders posted their biggest monthly decline in nearly two years in February, official data showed on Wednesday, dragged down by a sharp drop in demand from services firms IT and others to extend their decline into a second month.

The data added to concerns that Japanese companies are delaying investment due to rising energy and raw material costs, stoking fears about the pace of economic growth as the world’s third-largest economy tries to regain its footing. pre-pandemic levels.

“Companies are worried about soaring costs due to commodity price inflation that could hurt profits. The risk of a downturn in capital spending ahead is huge,” said Kota Suzuki, economist at Daiwa. Securities.

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Core machinery orders, a highly volatile leading indicator of capital spending over the next six to nine months, fell 9.8% in February from the previous month, Cabinet Office data showed on Wednesday, the biggest drop since April 2020.

It was well above the 1.5% fall predicted by economists in a Reuters poll and January’s 2.0% drop, and prompted the government to revise down its assessment of machinery orders, saying that a recovery was stalled.

Core non-manufacturing orders excluding ships and electric utilities fell 14.4% in February, led by a 36.9% drop in orders for IT services companies, the biggest drop since January 2006 .

“The information services industry has been aggressive in buying computers for IT systems and data centers since last October, and the movement appears to have stalled,” a government official said during a briefing. Press.

“It was a surprising and mixed result that highlighted weakness in non-manufacturers,” said Yasunari Ueno, chief economist at Mizuho Securities, who also noted weak demand from the transportation and financial sectors. .

Manufacturers’ orders fell 1.8%, penalized by weak demand from chemicals and other materials industries. Orders from electrical machinery companies rose 13.8% as they increased their investment in semiconductor manufacturing equipment.

On an annual basis, core orders rose 4.3% in February, the data showed, much weaker than the 14.5% rise expected by economists.

“In March and beyond, companies could become more cautious and reduce machinery orders due to the slowing global economy and the recovery in raw materials caused by the Ukraine crisis,” said Koya Miyamae, senior economist. at SMBC Nikko Securities.

Shaken by supply disruptions and soaring production costs, Japanese business confidence deteriorated in the first quarter for the first time in nearly two years, according to a Bank of Japan survey this month. Read more

Japanese big business executives expected the near-term outlook for recovery to remain modest at best, given uncertainties such as the Ukraine crisis and its impact on commodity inflation, a Reuters poll showed on Wednesday. .

Economists have lowered Japan’s growth forecasts, given mounting inflationary pressures on households and businesses. Read more

“The April-June consumption rebound may not be as strong as expected due to rising energy and food prices,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Companies too could limit their spending.”

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Reporting by Kantaro Komiya; Editing by Shri Navaratnam and Richard Pullin

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