Orders for machinery and equipment, a measure of future corporate capital expenditures and a feverishly awaited sign that Japan Inc. has finally started investing in Japan rather than just splurging overseas – and despite all hopes and expectations of a rise – totally collapsed.

• Total orders down 30.5% in May from April.
• Private sector core orders, which exclude orders from electric power companies and for ships, down 19.5%. The fiasco was spread fairly evenly across manufacturing and non-manufacturing sectors.
• Foreign orders down 45.9%.

It was the worst drop in the current data series published by the Cabinet Office going back to 2005. Worse than the worst month during the Financial Crisis. Worse even than the worst month after the 3/11 earthquake and tsunami that brought Japan to a near halt.

Economists, who have consistently been drinking too much of Prime Minister Shinzo Abe’s delicious money-printing Kool-Aid, expected orders to rise about 1%. It was described as “shocking.”

The government’s response to the data? “Growth in machinery orders has come to a standstill.”

While the data are very volatile and should be taken with a grain of salt, the less volatile core orders in May – down 19.5% – were preceded by a somewhat less terrible April: a plunge of 9.1%. It was the first month after the consumption-tax hike was implemented. At the time, it was considered a temporary blip.

Pandemic frontloading ahead of the April 1 tax hike and additional tax incentives for Japan Inc. that took effect in January and that companies jumped on produced a run-up of economic activity in the January-March quarter. The annualized growth rate of 6.7%, the fastest rate since the post-earthquake pent-up-demand quarter of July-September 2011, was brandished as incontrovertible proof that Abenomics was doing its lovely magic.

But more and more data is piling up that the January-March quarter was just an aberration.

But the “shocking” data doesn’t end here: the collapse in May came despite a 22.4% jump in orders from the public sector. Abenomics has thrown all budget caution overboard, embarking on another government spending and borrowing binge to benefit its constituency, Japan Inc. At the same time, it is extracting additional money from consumers that are already squeezed between stagnating wages and sharply rising inflation.

Abenomics is a phenomenally ingenious recipe for economic success: it has inflated the stock market, locked down the government bond market, and generated huge windfall profits for large banks and, through the weaker yen, for companies doing business overseas. But consumers, workers, and retirees? It’s hard to grow an economy by socking it to those folks.

And so a terrific corporate hangover has set in. Read…. Japan Inc.’s Worst Quarterly Outlook Since The 2011 Earthquake

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.