Machinery orders climb 14.8% as firms stay optimistic on investment

Bloomberg

Machinery orders rebounded in November, signaling that companies are willing to invest even as the yen remains strong and the global economy slows.

The orders, an indicator of future capital spending, rose 14.8 percent in November from a month earlier, the Cabinet Office said in Tokyo on Monday. The median estimate of 29 economists surveyed by Bloomberg News was for a 5.1 percent rise.

Weak overseas demand and gains in the yen have cut profits at several exporters, from Nippon Steel Corp. to Panasonic Corp. The rebound in orders signals that the world’s third-largest economy is showing some resilience to the stronger currency and a slowing global economy.

“Even if growth slows in Europe, the world economy is not going to fall apart,” said Naoki Murakami, chief economist at Monex Inc. in Tokyo, before the report. “If America stabilizes and Europe begins to pick up, I’m optimistic about the long run.”

The yen reached a postwar record of 75.35 the dollar on Oct. 31 and an 11-year high of 97.28 against the euro on Jan. 9, making Japanese products more expensive overseas.

“The biggest hurdle for Japanese companies will be the lack of demand, no matter where the yen goes,” Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo, said before the report. “However, a moderate recovery has already started.”

A stalled economy could increase opposition to Prime Minister Yoshihiko Noda’s plan to double the nation’s sales tax by 2015. The opposition party and some members of the ruling party have said a tax hike could further cripple a rebound.

Authorities intervened in the currency market at least three times to weaken the yen last year, and the government compiled four extra budgets, worth about ¥20 trillion, measures that have not been enough to sustain an export-driven recovery.

The economy may have contracted in the fourth quarter of 2011, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. The nation’s gross domestic product contracted for two quarters before growing at an annualized 5.6 percent in the three months through September. The Cabinet Office will release fourth-quarter GDP data next month.

Nippon Steel Corp., the country’s largest steel manufacturer, reported on Oct. 26 that its profits declined by more than half in the third quarter of 2011 on slow demand in Asia.