By Kantaro Komiya

TOKYO (Reuters – Japan’s core machinery orders saw their worst monthly drop for nearly two years in February according to official data. The decline was attributed to a dramatic fall in IT and service demand, which extended their decline into a third month.

Concerns that Japanese businesses are putting off investments due to rising fuel costs and rising profits have been added to by the data. These fears raise concerns about Japan’s ability to grow at the same pace as its third largest economy.

According to the Cabinet Office, core machinery orders, which are highly volatile indicators of capital spending over the next six-to nine months, dropped 9.8% in February compared with the month before, data from Wednesday showed.

This was the largest fall since April 2020, and much more than the 1.5% predicted by economists in a Reuters Poll and a 2.0% decrease in January.

The core orders of non-manufacturers, excluding electrical utilities, fell 14.4% in February. This was led by a 36% drop in orders from information services firms. It is the largest decline since January 2006.

An official from the government said at a press conference that “the information sector has been aggressively buying computers for IT system and data center facilities since last Oct, and it seems to have stalled.”

Due to soft demand for chemicals and other materials, 1.8% of manufacturers’ orders fell. As they increased their investments in semiconductor-making machinery, orders from electric machinery companies grew by 13.8%.

Wednesday’s government assessment of machinery orders was downgraded by the government, claiming that recovery has stalled.

Core orders increased 4.3% year-over-year in February according to data, which was much lower than the 14.5% increase expected by economists.

A Bank of Japan survey revealed that Japanese business confidence declined in the first quarter, due to supply disruptions, and rising production costs.

According to Reuters, Japanese business leaders expect that the near-term recovery outlook will be limited due to uncertainty such as Ukraine’s impact on commodity inflation and uncertainties like Ukraine.

An increase in inflationary pressures on both households and businesses has led economists to reduce their projections of Japan’s economic growth.