February machinery orders down 9.2% on weak manufacturing sector

The nation’s core private-sector machinery orders fell a seasonally adjusted 9.2 percent in February on a plunge for manufacturers, a reversal from the previous month that saw large orders from the steel industry, the government said Monday.

The orders, widely regarded as a leading indicator of future capital spending, totaled ¥848.7 billion ($7.9 billion), excluding those for ships and from utilities due to their volatility.

The Cabinet Office left its basic assessment unchanged, saying machinery orders are showing “signs of picking up.”

The orders dropped for the first time in three months following a 15.0 percent jump in January and 1.0 rise in December, with an official of the office telling a press briefing that they remain solid.

Still, analysts say the yen’s recent gains and growth concerns about overseas economies could make companies cautious about future capital spending as a stronger yen could slow exports and hurt business sentiment.

Orders from the manufacturing sector marked significant volatility, diving a record 30.6 percent to ¥321.0 billion in the reporting month after a 41.2 percent surge in January.

Steel makers led the decline with a 92.7 percent fall. The industry had marked more than a tenfold increase the previous month. The electric machinery sector also posted a slide, cutting orders for semiconductor manufacturing equipment and other machines.

Orders from the nonmanufacturing industry gained 10.2 percent to ¥531.0 billion for the third straight monthly increase.

The figures are closely watched as the government of Prime Minister Shinzo Abe sees business investment — which accounts for around 15 percent of the country’s gross domestic product — as a pillar of economic growth.

The Bank of Japan adopted a negative interest rate policy earlier this year, an unprecedented move to encourage bank lending and help spur corporate spending.

Miyuki Kiso, market economist at Mizuho Securities Co., said machinery orders still lack vigor as companies are unsure about the outlook with a strong yen potentially weighing on sentiment.

“The BOJ’s negative interest rate policy should work as a plus (for capital expenditure) . . . but it’s difficult for companies to make big investments when domestic demand is weak,” Kiso said.

Total orders, including those from the domestic public sector and abroad, rose 9.0 percent to ¥2.24 trillion.

Overseas demand for Japanese machinery, an indicator of future exports, gained 6.3 percent to ¥726.7 billion.

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