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Japan core machinery orders rebound, sign of gradual capex pickup
April 12, 2017 / 12:18 AM / 7 months ago

Japan core machinery orders rebound, sign of gradual capex pickup

TOKYO (Reuters) - Japan’s core machinery orders rebounded modestly in February from the previous month’s decline, a tentative sign of the pick-up in capital expenditure Japan needs to secure sustainable economic growth.

FILE PHOTO: Businessmen walk past heavy machinery at a construction site in Tokyo's business district, Japan, January 16, 2017. REUTERS/Toru Hanai/File Photo

Cabinet Office data published on Wednesday showed the core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 1.5 percent, versus a 2.7 percent rise expected by economists.

That followed a 3.2 percent decline in January.

The data comes as Japan’s economy, the world’s third largest, has shown signs of life in recent months, with factory output and exports enjoying a recovery in global demand, despite stubbornly weak consumer spending.

“The rebound in machinery orders in February wasn’t strong enough to reverse the decline in January. But with capacity usage picking up, we expect business investment to expand at a robust pace this year,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note to clients.

Still, Japanese firms may hold back from accelerating capital expenditure on concerns that Britain’s plan to leave the European Union and U.S. President Donald Trump’s protectionist tendencies could affect Japan’s export-reliant economy.

“Companies remain wary about uncertainty over political developments in Europe and Trump’s policies, therefore capital spending may lack momentum through the current quarter,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“As the global economy recovers, however, capital spending growth should pick up pace towards the latter half of this fiscal year as the latest BOJ tankan suggests.”

By sector, core orders from manufacturers rose 6.0 percent in February, following a 10.8 percent drop the previous month. Orders from the services sector rose 1.8 percent, posting a third straight month of gains.

Orders from abroad, which were not counted as core orders, dropped 1.1 percent in February, reversing the previous month’s 3.2 percent gain.

A closely watched central bank “tankan” survey showed this month that big firms plan to increase capital spending by 0.6 percent in the fiscal year ending in March 2018, offering hope that business investment will gather some momentum in coming months.

The Cabinet Office on Wednesday maintained its assessment of machinery orders, saying the pick-up was stalling.

Compared with a year earlier, core orders, which exclude ships and orders from electric power utilities, grew 5.6 percent in February, after a 8.2 percent slide in the previous month.

Reporting by Tetsushi Kajimoto; Editing by Eric Meijer

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