- Steven Wieting, global chief strategist at Citi Private Bank
Core orders for new machinery in Japan, a leading indicator of capital spending, increased for the first time in three months but at a slower than expected pace in June. Core machinery orders rose 8.8% from the previous month, following a record 19.5% dive in May. On a yearly basis, core orders fell as much as 3%, whereas economists had forecast a 3.3% jump. Orders at manufacturers and service-sector companies declined 8.5% and 6.7% in the April-June quarter, respectively. Manufacturers see orders inching lower 0.5% in the current quarter, while service-sector firms expect a 2.2% gain. The data comes just a day after national GDP showed the economy contracted at the fastest pace in five years, led by declines in consumption after the April 1 tax hike undermined demand. GDP came in at –1.7% in the June quarter, with the latest data adding to doubts concerning the government's plan to restore the world third-largest economy by fuelling inflationary pressures through monetary easing and fiscal stimulus. Nevertheless, economists expect that the Japanese economy will pick up again in the second half of the year, once the impact of the tax hike begins to subside.
The Japanese yen weakened to the lowest level since August 5 against the greenback after Japan's core machinery orders fell short of analysts' estimates in June, highlighting risks to Japan's economic recovery.
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