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Japan’s Machine Orders Slide Raises Recession Worries

Core machinery orders, a leading indicator of capital expenditure, fell 14.5% in August from a year ago.

Japan’s Machine Orders Slide Raises Recession Worries
Pedestrians walk along a sidewalk in the business district in Tokyo, Japan. (Photographer: Akio Kon/ Bloomberg)

(Bloomberg) -- The biggest slide in Japanese machinery orders in almost five years adds to concern the world’s third-biggest economy may be heading for a recession.

Japan’s economy has relied on robust domestic demand and capital spending to sustain growth in recent quarters amid a global slowdown that has hammered its export sector. A 14.5% drop in core machinery orders suggests growing caution at companies about future investment plans. Machine orders are a leading indicator of capital expenditure to come, though they are volatile from month to month.

Japan’s Machine Orders Slide Raises Recession Worries

The latest data is particularly worrying as it shows orders from the non-manufacturing sector fell 12.1% from a year ago. While the hit from slow overseas demand has hit Japan’s big product exporters, the domestic-orientated service sector has kept the economy expanding. If weakness in investment spreads beyond Japan’s factories to the wider economy, an expected slowdown could turn into a recession.

“The fall among non-manufacturers is a big deal,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Wages and incomes, including winter bonuses, are struggling to rise, which is weighing on non-manufacturers bit by bit.”

Economists already forecast the economy will shrink 2.7% in the final quarter of this year as a sales tax increase that took effect on Oct. 1 squeezes spending.

Today’s report follows figures released yesterday for the tools and equipment used for machinery, data that is seen as an even earlier indicator of capex. Machine tool orders plunged more than 30% for the fifth time this year in September.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Jason Clenfield

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