Japan core machinery orders rebound, signal capex recovery intact

11 Jun, 2018 8:25 am

TOKYO (Reuters) – Japan’s core machinery orders in April jumped the most since the start of 2016, reversing the prior month’s decline and raising some hopes for durable growth in capital expenditure seen as crucial for a recovery in the economy after a contraction in the first quarter.

Core orders, a highly volatile data series regarded as an indicator of capital expenditure in the coming six to nine months, rose 10.1 percent and handily beat a 2.8 percent gain forecast in a Reuters poll of economists. They fell 3.9 percent in March.

The data issued by the Cabinet Office on Monday came as a less-than-expected increase in factory output and an unexpected declines in household spending in April added to concerns about the fragility of the economy after it contracted in the first quarter.

The spectre of global trade war as US President Donald Trump’s pursues an “America First” policy has clouded the outlook for export-reliant Japan. Weakness in consumer spending is also weighing on the world’s third largest economy.

Policymakers are counting on capital expenditure to drive a virtuous growth cycle of higher wages boosting consumer spending, corporate profits and inflation.

With inflation struggling to accelerate towards its 2 percent price target, the Bank of Japan is widely expected to stand pat at its policy setting meeting this week.

Economists expect capital expenditure to remain in a gradual uptrend backed by investment in robotics and labour-saving technologies to cope with a labour shortage as well as the need to upgrade ageing plants and equipment.

The Cabinet Office said machinery orders are picking up, a slight upgrade from its previous assessment that they were showing signs of pick-up.

The value of core orders stood at 943.1 billion yen (6.42 billion pounds), the biggest since June 2008, the data showed.

By sector, orders from manufacturers jumped 22.7 percent in April, after a 17.5 percent decline in March, while service-sector orders increased 0.4 percent in April, up for a fourth straight month.

External demand for machinery, which is not counted as core orders, rose 10.0 percent in April, up for the first time in three months.

Compared with a year earlier, core orders, which exclude those for ships and from electric power utilities, grew 9.6 percent in April, versus a 3.9 percent increase expected.

The economy shrank at an annualised rate of 0.6 percent in January-March, with weaker private consumption offseting gains in capital expenditure.

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