By Daniel Leussink and Tetsushi Kajimoto
TOKYO (Reuters) -Japan's machinery orders posted their biggest single-month fall in six months in August as pressure from a global economic slowdown and a weaker yen that pushes up import costs darken the outlook for corporate spending.
The Reuters Tankan survey separately showed that business confidence at big manufacturers fell to a five-month low, as a double whammy of inflation and slowing global growth hurt the trade-reliant economy.
Core orders, a highly volatile data series regarded as barometer of capital expenditure in the coming six to nine months, fell 5.8% in August from the previous month, Cabinet Office data showed.
That marked the sharpest month-on-month decline since a 9.8% drop in February and was weaker than the median forecast of a 2.3% fall by economists in a Reuters poll.
"Although 'core' machinery orders dropped sharply in August due to a crash in non-manufacturing orders, Q3's average still points to an expansion in non-residential investment growth," said Darren Tay, Japan economist at Capital Economics.
"What's crucial is that Q3's average machinery orders are so far 1% stronger" than that of the second quarter.
By sector, a 21.4% decline in non-manufacturers' orders pulled down the headline reading. This was largely due to the transportation and postal sub-sector reversing the previous month's gains, the data showed.
Orders from manufacturers advanced 10.2% from the previous month, lifted by a large-size order for a nuclear motor in the non-ferrous metals sub-sector.
The survey pointed to slowing global growth. Overseas orders dropped 18.9% for their biggest tumble since March 2021 and the fourth straight month of declines, highlighting growing concerns about the external environment.
"Capital goods makers have benefited up to now from overseas demand, but the momentum is weakening due to the impact of the overseas economic slowdown," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"If the slowdown overseas becomes a real problem, companies may do away with their capital expenditure plans," he said, underscoring the risks to the outlook despite the firm spending in the first six month of the fiscal year that started in April.
Compared with a year earlier, core orders, which exclude volatile numbers from shipping and electric utilities, rose 9.7% in August, the data found.
In the Reuters Tankan survey, the manufacturers' sentiment index slipped to 5 in October from 10 last month as monetary tightening around the world and the yen's recent decline to a 24-year low against the dollar hurt corporate sentiment.
The world's third-largest economy has managed to expand at a relatively strong pace so far this year, growing an annualised 3.5% in the second quarter as private spending picked up after the government lifted local COVID-19 restrictions.
But it faces risks from an economic slowdown in Asia and the United States, which is clouding the prospects for a stronger recovery and making companies and consumers more cautious at home.