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Japan's core machinery orders fell the most in eight months. This is worrying that global trade tensions are hitting corporate investment, raising doubts about whether solid domestic demand can help offset the external pressures facing Japan's export-dependent economy.
Any decline in corporate spending will undermine wage growth prospects and weaken central bank hopes that a sustained economic recovery will prompt firms to raise prices and wages, thereby helping to achieve the 2% inflation target.
Data released by the Cabinet Government on Monday showed that core machinery orders fell by 7.8% in May compared with the previous month. Core machinery orders are regarded as a measure of capital expenditure in the next six to nine months, with large fluctuations.
This is the biggest decline since September 2018, with Reuters polls predicting a 4.7% drop and a 5.2% increase in April.
Policymakers look to domestic demand to offset risks such as the U.S. -China trade war and a slowdown in global demand. These unfavorable factors may lead to Japan's economic derailment.
Capital expenditure has been a bright spot in Japan's fragile economy, helping GDP grow at an annualized rate of 2.2% in the first quarter.
Nevertheless, external risks will overshadow Japan's export-dependent economy, which will weigh heavily on Japanese business confidence and thus drag down capital expenditure.
While the Abe government is set to raise the consumption tax to 10% in October, this may only increase concerns about domestic demand.


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