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Japan's March machinery orders fall as damage from pandemic spreads

TOKYO (Reuters) - Japan’s core machinery orders slipped in March, suggesting a widening hit to the economy from the coronavirus although the pace of decline was offset by a large number of orders for big-ticket items.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, edged down 0.4% in March from the previous month, Cabinet Office data showed on Wednesday.

The drop followed a 2.3% gain in February and was better than a 7.1% decline predicted by economists in a Reuters poll.

“The small decline in orders in March is likely to give way to a collapse in investment across this quarter,” said Tom Learmouth, Japan economist at Capital Economics.

“The ominous plunge in domestic machine tool orders in April suggests ‘core’ machinery orders fell sharply last month,” he wrote in a note.

Japan’s tool machinery orders in April fell to their lowest level in more than a decade, preliminary data showed last week.

The world’s third-largest economy slipped into a deepening recession in the last quarter, underlining the broadening impact from the pandemic which has hit trade-reliant nations such as Japan particularly hard.

The sluggish machinery orders data came after the Reuters Tankan survey on Wednesday showed the slump in Japanese business confidence deepened to a more than decade low in May as firms braced for a growing hit from the virus.

Prime Minister Shinzo Abe has pledged a second supplementary budget later this month, on top of the recently announced record $1.1 trillion stimulus package, to help business and households get through the period of economic weakness.

By sector, manufacturers’ orders dropped 8.2%, weighed by pulp and paper products and cars and car parts, while core orders from the service-sector rose 5.3%, led by an 82% jump in orders from the transportation and postal sub-sector.

The March reading was largely driven by a higher than usual number of orders for big-ticket items, including four for the service-sector.

The Bank of Japan will hold an emergency policy meeting on Friday to set up a reward scheme for financial institutions that boost lending to small firms hit by the pandemic.

The central bank in April boosted the amount of corporate bonds and commercial paper it can buy to ease corporate funding strains. It also pledged to buy an unlimited amount of bonds to keep borrowing costs low.

From a year earlier, core machinery orders were down 0.7% in March, beating an expected 9.5% decline and following a 2.4% fall in February.

Reporting by Daniel Leussink; Editing by Sam Holmes

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