Core machinery orders in Japan unexpectedly fell for the second consecutive month in May, highlighting the fragility of the economy, according to data released by the government on Thursday.
This leading indicator of capital expenditure volatility dropped by 3.2% in May compared to the previous month, following a 2.9% decline in April, while analysts surveyed by Reuters had projected a 0.8% increase in May.
The slowdown in machinery orders could challenge the Bank of Japan's plans to normalize monetary policy. The Bank of Japan has begun winding down its unconventional policies, raising interest rates in March for the first time since 2007 and deciding to reduce government bond purchases in June.
The Cabinet Office, which compiles the data, downgraded its assessment of machinery orders, stating that signs of a recovery in orders are stagnating.
Core orders exclude shipbuilding, ship repairs, and power generation, which are typically volatile. Orders from overseas are also not included; they are categorized as external orders or exports. External orders account for about 40% of total orders, while domestic core orders account for 30%.
Compared to the same period last year, core orders in May increased by 10.8%, seen as an indicator of capital expenditure six to nine months in advance.
The Cabinet Office survey showed that core orders rose by 4.4% from the previous quarter between January and March, but are expected to decline by 1.6% in the second quarter.
Capital expenditure is one of the few bright spots for Japan, driven by demand for labor-saving technologies, digitalization, and green transformation, aiming to improve labor productivity and address long-term labor shortages.
