TOKYO (Reuters) - Japan’s core machinery orders fell in June and companies expect them to fall further in the current quarter, another sign that government stimulus has yet to boost capital spending as debate intensifies over how to address massive and growing public debt.
Weak capital spending is a source of concern for Prime Minister Shinzo Abe, who faces a tough decision on whether or not to go ahead with a sales tax increase to lift revenues and is reportedly now considering a cut in corporate taxes.
The 2.7 percent fall in core orders, which excludes those of ships and electric power utilities, compared with economists’ median forecast of a 7.2 percent drop and followed a 10.5 percent jump in May, data from the Cabinet Office showed.
The machinery orders data, a leading indicator of capital spending, came a day after a slower-than-expected growth figures for the second quarter that showed capital expenditure fell for a sixth straight quarter.
The doubling of the 5 percent sales tax rate in two stages is seen as an important signal of intent on fixing Japan’s public debt, which at more than 1,000 trillion yen ($10.4 trillion) is more than twice the size of its GDP.
But there are concerns the hike could stifle the economy, and Abe is considering a corporate tax cut as a way to offset the potential drag, the Nikkei economic daily reported.
Compared with a year earlier, core orders increased 4.9 percent in June against a forecast of a 2.4 percent gain.
In a worrying sign, companies forecast core orders would fall 5.3 percent in July-September from April-June, when they rose 6.8 percent to record the first increase in five quarters.
“The forecasts for July-September are a little disappointing,” said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch Securities.
“This will keep the government cautious about capital expenditure and increase the voices requesting measures to stimulate capital expenditure.”
Minutes from the Bank of Japan board meeting last month, released on Tuesday, showed members thought the economy was beginning to recover but there were concerns about the outlook for capital spending and the global economy.
One board member said big manufacturers’ capital expenditure wasn’t strong, and that companies tended to focus more on overseas rather than domestic spending, the minutes showed. ($1 = 96.5650 Japanese yen)
Additional reporting by Leika Kihara, writing by Stanley White; Editing by John Mair