Japan's machinery orders unexpectedly fell in August in a worrying indication that capital expenditure is weaker than many policymakers expected, which could increase the chances of new fiscal and monetary stimulus. Core machinery orders, a leading indicator of capital expenditure, fell 5.7 percent in August versus the median estimate for a 3.2 percent increase, and followed a 3.6 percent decline in the previous month.
The decline in machinery orders suggests capital expenditure is not as strong as indicated in last week's Bank of Japan tankan survey and could undermine Governor Haruhiko Kuroda's optimism. The September tankan survey found that big firms plan to raise capital expenditure by 10.9 percent in the fiscal year that started April 1, compared with their previous plan to boost capital spending by 9.3 percent.
Kuroda citied these figures as one reason inflation will pick up after the central bank left policy on hold on Wednesday, but the slide in machinery orders undermines this argument. The Cabinet Office lowered its assessment of machinery orders to say they are stalling. Machinery orders fell 3.2 percent in August from July led by down by electronics, steel and car manufacturers, Cabinet Office data showed.
Orders from non-manufacturers' fell 6.1 percent, due to declines in orders from financial services and shipping. An unexpected decline in August industrial production led some economists to say the economy may have contracted in July-September, which would put it in a technical recession after a contraction in April-June. Machinery orders are very volatile, so it is premature to say whether or not the chance of a recession has increased, but the outlook is still weak due to worries about overseas demand, economists say.