Japan's core machinery orders plunged at the fastest pace of 19.5 percent in May from the previous month, the government said Thursday, indicating that companies were reluctant to invest in plant and equipment after the April sales tax hike.
The orders slid for the second straight month to JPY 685.3 billion (USD 6.8 billion) following a seasonally adjusted 9.1 percent drop in April, according to data released by the Cabinet Office.
The value of the orders was the smallest since January 2013 and marked the sharpest month-on-month decline since comparable data became available in April 2005. Core private-sector orders, which exclude volatile demand from electric utilities and for ships, are considered a key indicator of corporate capital spending in the next three to six months. By industry, orders by manufacturers dropped 18.6 percent from the month before in May, and those from non-manufacturers also shrank 17.8 percent. Overseas demand, an indicator of future Japanese exports, fell 45.9 percent.
The worsening data suggested that the sales tax hike in April, from 5 percent to 8 percent, has caused negative impact to the world's third-biggest economy.
The Cabinet Office revised down its assessment of machinery orders, saying, "the orders are at a standstill in their growth," compared with last month's "on a growth trend." Last week, a quarterly survey released by the Bank of Japan showed that business confidence among major Japanese manufacturers fell in the April-June period from the previous three months, marking the first deterioration in six quarters.