Japan's Economic Momentum Falters Amid Trade Deficit and Soft Capex
The Bank of Japan's upcoming policy decision has been complicated by a mixed bag of economic data from Japan. Core machinery orders, a key indicator for business investment, fell 3.7% in July compared to June, missing forecasts for a 2.8% decline. This reversal comes after a 9.7% increase in June.
The annual figure was also disappointing, at 11.2%, below the 15.3% pace expected by economists and down from June's 16.9% growth. This softer capex signal raises questions about the durability of Japan's recent investment momentum.
On a separate note, Japan's trade balance for August showed a deficit of ¥1105.6 billion, wider than the ¥1052.6 billion shortfall economists had forecast and a sharp deterioration from July's ¥638.3 billion deficit. The widening gap was driven primarily by imports, which grew 28.0% year on year, ahead of forecasts for 26.3% growth.
The combination of these two indicators creates a policy tension for the Bank of Japan between a cooling investment outlook and persistent cost-push inflation from the import side.