February 18, 2019 / 4:30 AM / 3 months ago

UPDATE 3-Foreign demand for Japanese machinery slumps by most since 2007

 (Recasts, adds corporate examples, background, details on
quarterly orders)
    * Dec core orders -0.1 pct m/m vs forecast -1.1 pct
    * Jan-March core orders seen down 1.8 qtr/qtr 
    * Global economic slowdown poses risk to Japan's capex
    * Protectionism could harm corporate sentiment

    By Stanley White
    TOKYO, Feb 18 (Reuters) - Overseas orders for Japanese
machinery posted their biggest tumble in more than a decade in
December, as trade frictions dented global supply chain demand
and manufacturers predicted further declines in orders this
quarter.
    Data released on Monday showed core machinery orders,
considered a leading indicator of capital expenditure, fell 0.1
percent month-on-month in December. This was the first decline
in three months but was smaller than the median forecast for a
1.1 percent decrease.
    Highlighting bigger concerns about the external environment,
however, was a 21.9 percent month-on-month slump in orders from
overseas, the biggest fall since November 2007.
    The Cabinet Office data comes as some of Japan's major
corporates flag expected hits to sales to customers, which
include downstream manufacturers who use Japanese components,
amid an increasingly cautious investment environment.
    "Capital expenditure won't be that strong, and this will
hamper Japan's overall growth," said Shuji Tonouchi, senior
market economist at Mitsubishi UFJ Morgan Stanley Securities.
    "We see the impact of trade friction. There's a lot of
uncertainty and manufactures are becoming more cautions."
    A Cabinet official told reporters at a briefing the slump
was partly due to the base effect of large overseas orders seen
over the past two months. However, forecasts show manufacturers
expect overseas orders to fall by another 17.1 percent in the
current quarter.
    Manufacturers surveyed by the Cabinet Office forecast core
orders will fall 1.8 percent in January-March after decreasing
4.2 percent in October-December.
    The Cabinet Office said in a statement machinery orders were
"stalling", a downgrade to its previous assessment, which
described orders as "recovering but showing signs of stalling".
    Quarterly data for the October-December period showed the
broader decline in orders was driven by weakness in the
chemicals, electronics, logistics and construction sectors.
    
    SIGNS OF PAIN
    Global trade has already slowed as the United States and
China exchanged tit-for-tat tariffs in a heated dispute over
trade. The proposed introduction of further tariffs, if a
resolution between Washington and Beijing is not found, would
hurt Japan's export-focused economy.
    The trade war between the world's two largest economies is a
major risk for Japan's auto, electronics, and heavy machinery
sectors, which export goods to China where they are used to make
finished products destined for the United States and other
markets.
    In one example of the pain already felt, Japan's Panasonic
Corp          cut its annual profit outlook earlier this month
as the trade war hurt demand for auto components and factory
equipment.             
    "Demand for mechatronics, mostly motors, has plunged since
November as our clients making equipment for smartphone
factories cut their investment," Panasonic's Chief Financial
Officer Hirokazu Umeda said.
    In another example, Japan's Nikon Corp          cut its
sales forecasts because its customers are postponing orders for
semiconductor manufacturing equipment.            
    Compared with the previous month, Japan's orders from
manufacturers fell 8.5 percent in December after a 6.4 percent
decline in November, due to lower orders from makers of
manufacturing equipment and electronics.
    Service-sector orders rose 6.8 percent, faster than a 2.5
percent increase the previous month due to a pick-up in orders
from the telecommunications sector. Despite this acceleration,
economists are likely to remain more concerned about the
manufacturing sector and global demand.
    "Core" machinery orders exclude those for ships and from
electricity utilities.
    Signs of pain were seen elsewhere in Asia on Monday with
Singapore's exports stumbling more than expected in January. In
an indication the weakness was broadening, shipments to all the
city-state's top trading partners, including China and the
United States, declined from the year earlier.             
    Japan's gross domestic product returned to expansion in the
fourth quarter after a series of natural disasters caused a
contraction in the previous quarter, but economists have warned
that they are not optimistic about the outlook this year.
            
    Another risk is the Japanese government's plan to raise the
nationwide sales tax to 10 percent from 8 percent in October.
    The government needs the extra tax revenue to pay for rising
welfare costs, but some policymakers and economists worry the
tax hike could hit consumer spending and weaken sentiment.
    Japan's policymakers have long argued that an increase in
business investment will contribute to economic growth as
companies replace old manufacturing equipment and invest in new
technology.
    However, the chance of a growth spurt this year driven by
corporate investment has dimmed considerably, economists say.
    

 (Reporting by Stanley White; Additional reporting by Makiko
Yamazaki and Yoshiyasu Shida
Editing by Sam Holmes)
  
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