Japan machinery orders fall in sign of soft capex demand

[TOKYO] Japan's core machinery orders fell 1.7 per cent in January, suggesting that companies remain reluctant to increase capital expenditure given the uncertain economic outlook.

The data underscores the challenges Prime Minister Shinzo Abe and the Bank of Japan face as they attempt to nudge firms into boosting spending on wages and equipment with their stimulus policies.

But the decrease was smaller than a median market forecast for a 4.1 per cent drop, offering some hope on the outlook for capital expenditure. It followed a 8.3 per cent rise in December, which was the fastest pace in six months.

Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, increased 1.9 per cent in January, data by the Cabinet Office showed on Wednesday.

Corporate spending on plant and equipment, along with wages growth, hold the key to the ultimate success of Mr Abe's policy recipe dubbed "Abenomics" aimed at generating a virtuous cycle of private-sector-led growth.

But companies have so far been slow to implement their robust capital spending plans as seen in the BOJ's key tankan survey due to uncertainty over the economy's outlook.

The BOJ expects capital spending to increase in coming months as the economy emerges steadily from recession thanks to a much-awaited rebound in exports and factory output.

Still, looming uncertainty over the outlook has kept alive market expectations that the central bank will expand stimulus again later this year.

Japan's economy grew much less than initially thought in the fourth quarter as capital expenditure declined, data showed on Monday, in a worrying sign that a rebound in consumer spending is not encouraging business investment.

REUTERS