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Machinery orders slip as trade woes hit business spending

ReutersTOKYO (Reuters) — Core machinery orders slipped in July, albeit at a slower-than-expected pace, as slowing global demand and protracted trade tensions hit corporate investment in the world’s third-largest economy.

Cabinet Office data Thursday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 6.6 percent in July from the previous month.

The drop was smaller than a 9.9 percent fall seen by economists in a Reuters poll and followed a sharp 13.9 percent rise in June, the biggest month-on-month gain since comparable data became available in 2005.

Policymakers have been counting on resilience in corporate spending to offset risks to the global manufacturing cycle and growth from the bitter trade war between the United States and China, the world’s two largest economies.

The nation’s economy expanded an annualized 1.3 percent in the second quarter, revised official data showed Monday, even as capital expenditure was downgraded to just 0.2 percent quarter-on-quarter growth from a 1.5 percent gain in a worrying sign for the outlook.

Amid the risks to the outlook, speculation is growing that the Bank of Japan could ease policy at next week’s board meeting to prevent a possible spike in the yen and dampen the impact from weaker external demand.

As the fallout from the U.S.-China trade war broadens, central bank policymakers are more open to discussing the possibility of expanding stimulus at their board meeting on Sept 18-19, sources familiar with its thinking said.

The BOJ also has to factor in signs of domestic weakness such as slower household spending that suggest consumers could tighten their purse strings even before a planned sales tax hike to 10 percent comes in next month.

Consumer confidence deteriorated in the wake of the previous tax hike to 8 percent from 5 percent in April 2014. That, in turn, caused an economic slump.

The Cabinet Office maintained its assessment on machinery orders to say they are showing a pick up.

By sector, core orders from manufacturers advanced 5.4 percent in July from the previous month, rising for the first time since April, while those from the service-sector fell 15.6 percent, the Cabinet Office data showed.

Compared with a year earlier, core orders, which exclude those of ships and electricity, advanced 0.3 percent in July, rising for a second straight month, and defying expectations for a 4.5 percent contraction.Speech

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