Japan machinery orders rise, capex recovery seen intact

[TOKYO] Japan's core machinery orders unexpectedly grew for a second straight month in November, posting the fastest gain in four months, underscoring a steady pickup in capital expenditure.

Cabinet Office data out on Wednesday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 5.7 per cent in November from the previous month.

Core orders, which exclude ships and orders from electric power utilities, handily beat a 1.4 per cent drop seen in a Reuters poll of analysts, following 5.0 per cent growth in October.

Analysts expect capital spending to remain in a gradual uptrend, given hefty company profits, negative interest rates, the need for labour-saving technologies to counter labour shortages, and procurement for the 2020 Tokyo Olympics.

"Capital spending has been bullish recently," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"It is entering an autonomous expansion phase," he said.

Prime Minister Shinzo Abe, who hopes capital expenditure will drive a virtuous growth cycle in the world's third largest economy, has decided to offer renewed tax breaks for companies that invest in cutting-edge technologies to boost productivity.

Orders from manufacturers fell 0.2 per cent month-on-month in November, following a 7.4 per cent increase in the previous month.

Non-manufacturers' orders jumped 9.8 per cent, after a 1.1 per cent gain in October.

The Cabinet Office stuck to its assessment that machinery orders were showing signs of picking up.

Compared with a year earlier, core orders grew 4.1 per cent in November, versus a 0.7 per cent decrease expected by economists.

Japan's economy is in its best shape in years, led by strong global demand lifting exports and corporate earnings, although inflation remains subdued due to sluggish wage growth and weak consumer spending.

Bank of Japan Governor Haruhiko Kuroda offered a positive view on the economy and inflation on Monday, raising speculation the central bank may exit its crisis-mode monetary stimulus earlier than expected.

However, Mr Kuroda reiterated the central bank's resolve to maintain its massive stimulus until its 2 per cent inflation was met. The BOJ is due to issue quarterly projections for the economy and prices at its policy-setting meeting next week.

REUTERS