May 17, 2017 9:07 am JST

Japan March core machinery orders disappoint, outlook gloomy

Humanoid robots work side by side with employees in the assembly line at a Tokyo manufacturer. © Reuters

TOKYO (Reuters) -- Japan's core machinery orders fell short of expectations in March from the previous month and companies forecast a decline in investment over April-June, casting doubt on whether recent signs of economic recovery will be sustainable.

Core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, rose 1.4 percent in March from the previous month, Cabinet Office data showed on Wednesday. This undershot the median estimate of a 2.1 percent rise expected by economists in a Reuters poll.

Wednesday's reading suggests companies are cautious about investing amid uncertainty about the possible impact of U.S. President Donald Trump's protectionist policies on export-reliant Japan, and may delay capital spending in the coming months.

Companies surveyed by the Cabinet Office forecast that core orders, which exclude those of ships and from electric power utilities, would fall 5.9 percent in the April-June quarter.

Compared with a year earlier, core orders declined 0.7 percent in March, sharply undershooting the median estimate for a 0.6 percent rise.

"Uncertainty in the global economy, Trump's protectionist policies and the political situation in Europe all came together to produce a weak result," said Takeshi Minami, chief economist at Norinchukin Research Institute.

However, if overseas economies continue to recover and business confidence improves, orders for April-June may not be as weak as expected, Minami added.

Core machinery orders rose for the second straight month in March due to an increase in orders from the non-ferrous metal and auto parts sectors, the data showed.

Policymakers hope capital spending will help drive growth in the economy, which has recently shown some signs of life, and pull it out of deflation and stagnation.

Japan's economy is expected to have expanded for the fifth straight quarter in January-March on a recovery in consumer spending and solid offshore demand.

Analysts project the economy will continue to expand as exports rise, while capital spending is expected to recover, reflecting strong corporate earnings and growing business confidence.

The Cabinet Office will announce the GDP data on May 18 at 8:50 a.m.(2350 GMT, May 17).

In January-March, however, core orders dropped 1.4 percent from the previous quarter due to declines in orders from oil refiners and the transport sector, the data showed.

Export orders fell for the second straight month, declining 2.8 percent in March from the previous month due to weak orders for industrial, electronic and communications equipment.

The Cabinet Office maintained its assessment of machinery orders, saying the pick-up in machinery orders was stalling.

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