A few days ago, we wrote about how the Japanese economy has a lot to lose over the ongoing trade war between US and China, as Japan is an export-oriented economy with China as its leading trade partner. Data released by the Cabinet Office today reveals that core machinery orders have registered the sharpest fall in eight months, a worrying sign pointing towards possible decline in business spending.

In May, core orders declined by 7.8% – the steepest decline since last September. Analyst expectations were for a 4.7% decline, while this figure had risen 5.2% higher during April. While this is a highly volatile data, it serves as a useful indicator to assess capital spending over the next six to nine months.

As the US-China trade dispute continues with no resolution in sight, policymakers are hoping that domestic demand remains strong enough to offset any potential harm to the Japanese economy due to such external factors. Weaker external demand could, however, possibly reduce businesses’ capital spending plans in the near future unless US and China sign a trade deal and stop hiking tariffs on each other’s goods.