Japan core machinery orders fall as Trump, demand uncertainty sets in

By Stanley White

TOKYO (Reuters) - Core orders for Japanese machinery fell in November at their fastest in seven months, a sign companies may be deferring capital expenditure as uncertainty over the incoming Trump Administration's trade policies and global demand worries take hold.

Core orders, a highly volatile data series regarded as a leading indicator of capital expenditure, fell 5.1 percent in November from the previous month, Cabinet office data showed on Monday, more than the median estimate for a 1.7 percent decline.

Many economists originally forecast that capital expenditure would gradually increase this year, but growing concerns that U.S. President-elect Donald Trump may adopt protectionist trade policies could cause companies to scale back investment.

Trump vowed to withdraw from the Trans-Pacific Partnership free trade pact, a blow for Japan because it was counting on the TPP to boost exports and drive structural reform in its farm sector.

"There is some uncertainty about the new U.S. government, but this has not been fully factored in yet," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

"Depending on what happens, Japanese companies could be forced to rethink their capex plans. There are also worries that domestic consumer spending may not accelerate."

Core machinery orders, which exclude ships and heavy electrical equipment, fell in November due to a decline in orders from chemicals makers, oil refiners and the transport sector, the data showed.

Orders from the wholesale and retail industries also fell in November.

Orders from the services sector fell 9.4 percent in November after a 4.6 percent increase in the previous month.

Orders from manufacturers rose 9.8 percent, following a 1.4 percent decline in the previous month.

Trump, who takes office on Jan. 20, has rattled Japanese automakers by threatening a large border tax on the cars they manufacture in Mexico and export to the United States.

Some economists worry that once Trump takes office his criticism could shift to the goods Japan manufacturers within its own borders for export the United States, which could discourage Japanese capital expenditure.

There are also concerns that trade friction with the United States could hurt Japanese consumer sentiment, which would then weigh on household spending.

(Reporting by Stanley White; Editing by Eric Meijer)