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Japan May machinery orders seen bouncing, Trump poses risk longer term
July 7, 2017 / 6:46 AM / 2 months ago

Japan May machinery orders seen bouncing, Trump poses risk longer term

Heavy machineries are seen next to a subway train at a construction site in Tokyo, Japan, March 13, 2016. REUTERS/Yuya Shino

TOKYO (Reuters) - Japan’s core machinery orders are expected to have rebounded in May, a Reuters poll showed, and analyst say the near term outlook points to solid capital spending although in the longer run businesses remain cautious due to uncertainty around U.S. trade policies.

Core machinery orders are seen rising 1.7 percent in May from the previous month following a 3.1 percent drop in April, the Reuters poll of 17 economists found.

The highly volatile data series is regarded as a leading indicator of capital spending in the coming six to nine months.

Analysts say a pickup in the global economy and a weaker yen should underpin core machinery orders, as companies enjoying strong earnings continue to spend on equipment.

Those signs were evident in some recent solid data, helping bolster the world’s third-biggest economy. The latest Bank of Japan’s survey showed confidence among Japan’s big manufacturers hit its highest level in more than three years in the June quarter.

In the longer term, however, business spending might remain uneven due to uncertainty over U.S. trade policies. Concerns persist about President Donald Trump’s pledge to adopt protectionist trade policies, which could hurt Japan’s export-driven economy.

“There is an increasing demand for capital spending for labor-saving equipments due to labor shortage,” said Takumi Tsunoda, Shinkin Central Bank Research Institute.

“But some companies, especially small and medium-sized ones, retain their cautious stance on investment.”

Compared with a year ago, core orders, which exclude those of ships and electric power utilities, jumped 7.7 percent in May after a 2.7 percent gain in April.

The Cabinet Office will release the machinery orders data at 8:50 a.m. Japan time on Monday (Sunday 2350 GMT).

Data on the current account balance, which will be released at the same time as machinery orders, is expected to show a surplus of 1.796 trillion yen ($15.81 billion) in May, from 1.95 trillion yen in April.

The surplus is mainly seen from gains in the income balance, lifted by earnings from Japanese subsidiaries overseas thanks to a weaker yen and a strong global economy.

The Bank of Japan’s corporate goods price index (CGPI), which measures the prices companies charge each other for goods and services, was tipped to show an annual 2.1 percent rise in June. The data will be released on Wednesday.

Reporting by Kaori Kaneko; Editing by Shri Navaratnam

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