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Business trends

Trade war dents Japan's machine tool orders

First drop in two years as Chinese buyers hold off

Machine tool production at a Citizen Machinery plant in Japan's Nagano Prefecture. The U.S.-China trade war is weighing on Chinese demand for Japanese machine tools.

TOKYO -- Orders for Japanese machine tools declined last month for the first time since November 2016 as the trade war sapped demand from China, the industry's biggest market and a vital growth driver.

Orders slid 1.1% year on year to 139.18 billion yen ($1.22 billion) in October, according to preliminary data released Monday by the Japan Machine Tool Builders' Association. A 1.1% increase in domestic orders to 57.35 billion yen was more than offset by a 2.5% drop in overseas demand to 81.83 billion yen.

Total monthly orders remained well above the 100 billion yen seen as an indicator of a healthy industry, and year-to-date orders are up 17.2% from 2017, thanks to short-handed manufacturers turning to capital spending to meet their needs. But the strong growth the industry enjoyed in 2017 and for much of this year is fading.

China is widely seen as the main culprit behind the slowdown, though the preliminary data does not break down overseas orders by country. Trade tensions with the U.S. have spurred many Chinese manufacturers to think twice about committing to machine tool purchases.

"Negotiations are still going fine, but customers are hesitating to take the last step and sign a contract," an executive at a machine tool manufacturer said.

Toshiba Machine Chairman Yukio Iimura, who heads the Japan Machine Tool Builders' Association, sees growing uncertainty about the future making buyers "more cautious about investing decisions." If this trend continues, machine tool makers may need to rethink their own investment plans.

Industry players generally do not expect the bottom to fall out of Chinese demand. As products such as autos and smartphones grow more advanced, manufacturers need machine tools capable of greater precision. "Solid orders are coming in," said Takao Nishijima, CEO of automatic lathe supplier Tsugami.

Masahiko Mori, president of DMG Mori, still sees plenty of potential demand. Production facilities "want to buy" equipment, he said.

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