TOKYO: Japan’s key gauge of capital spending fell for the first time in five months in October in a sign that business investment may be losing momentum. The government indicated that capital spending could be set to weaken as Japan struggles to recover from an April sales tax increase that pushed the economy into recession.
Machinery orders dropped a larger than expected 6.4% from September. Economists surveyed by The Wall Street Journal and the Nikkei had estimated that core orders would decrease 2.1%.
The figures are widely regarded as a leading indicator of capital expenditure, but are also known for their volatility, limiting the conclusions that can be drawn from one month’s data. The government kept its assessment of the indicator unchanged, saying orders were showing signs of gradual recovery.
Machinery orders had been rising following a 20% plunge in May after the April tax increase, in a sign that business investment had been steadily recovering. Orders rose 2.9% in September.
The latest numbers come ahead of Sunday’s general election that polls suggest Prime Minister Shinzo Abe’s ruling party will win comfortably, giving him a renewed mandate to plow ahead with his pro-growth economic policies that have already helped weaken the yen and push up share prices.
Mr. Abe decided to call a snap election and delay a second consumption tax increase initially scheduled for next year after data showed Japan’s economy contracted in the third quarter. Revised figures released last week showed that the economy shrank even more than expected, as capital spending declined and private consumption remained weak.
The latest machinery orders data give no indication of a bright upturn in capital spending in the months ahead.
A survey released Wednesday for the October-December quarter showed Japanese companies were less optimistic about their business conditions than they were three months ago, underscoring how firms were taking a more cautious view on the economy following the tax increase.