Japan's core machinery orders fall for first time in 3 months

TOKYO: Japan's core machinery orders slipped for the first time in three months in May, hurting hopes that a pickup in business spending would offset pressure on an economy struggling with surging costs of energy and other imports due to a weak yen.

The decline in core orders comes after Prime Minister Fumio Kishida's ruling coalition increased its majority in the upper chamber of parliament, strengthening the premier's hand as leader.

Core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, lost 5.6 per cent in May from the previous month, posting their first drop in three months, Cabinet Office data showed on Monday. It was almost exactly in line with the median estimate of a 5.5 per cent increase in the previous month and a 7.1 per cent increase in March.

Japanese firms could delay spending due to persistent constraints in the supply of chips and parts and rising energy and raw material prices that have been exacerbated by a weakening yen, which has caused wholesale inflation to go up.

On the gross domestic product basis, the businesses have a strong desire to invest, but their actual capital spending has not increased a lot, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

Machinery makers are saying chips are not coming in even though they are sitting on orders. That isn't reflected in the capital spending. Core orders, which exclude volatile numbers from shipping and electric power utilities, gained 7.4 percent in May, compared with a year earlier in the year.

The orders of manufacturers contracted 9.8 per cent month-on-month, weighed by electrical machinery, while those from non-manufacturers saw a decline of 4.1 per cent, due to a drop in orders from the transportation and postal sub-sector.

The government kept its assessment on machinery orders unchanged, saying they were showing signs of picking up.

After contracting in the first quarter, the economy is expected to return to growth in January-March, but the rebound is feared to be smaller than originally projected.

The world's third-largest economy is facing headwinds due to soaring import costs and a heavy-handed epidemic response in China, which could hurt consumption and output in the quarter.