Record tumble in Japan machinery orders casts doubt on Abenomics

Wed Feb 12, 2014 12:59am EST
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By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's core machinery orders suffered a steep drop in December and companies expect more declines in the January-March quarter, a worrying sign for capital spending seen as key to cementing a recovery in the world's third-largest economy.

The 15.7 percent decline in orders, a leading indicator of capital expenditure, was much worse than a projected 4.1 percent decline and was the largest since comparable data available from 2005.

Companies surveyed by the Cabinet Office forecast that core orders, which is a highly volatile data series, will fall 2.9 percent in January-March, which would be the first drop in four quarters.

The data could fuel skepticism of Prime Minister Shinzo Abe reflationary policies, known as "Abenomics", which has combined a massive injection of fiscal and monetary expansionary to pull the economy out of a decades-long slump.

A central plan of Abenomics is to spur capital spending to create a virtuous cycle of job creation, higher wages and consumer spending.

"Companies are turning cautions before the sales tax hike," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

"Capex could contract in April-June as well. If capex doesn't recover in the second half of year, there will be expectations for the government and the BOJ to respond."

The weak orders data raises doubts that a freeze in business investment is thawing, which would hurt efforts to conquer 15 years of persistent deflation and foster sustained growth..   Continued...

Men work at a construction site in Tokyo February 12, 2014. REUTERS/Yuya Shino