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Core machinery orders sank 13.1% in January

Kyodo

Core private-sector machinery orders fell a seasonally adjusted 13.1 percent in January from the previous month as manufacturers including electric machinery firms were reluctant to boost investment, the government said Monday.

The orders, which exclude those for ships and from utilities because of their volatility, slid for the first time in four months to ¥654.4 billion, plunging much faster than market expectations.

The Cabinet Office said machinery orders, regarded as a leading indicator of capital spending, are “showing signs of moderately picking up, but significantly decreased in January.”

Analysts said that despite the decline, orders are expected to trend upward for the next few months as the government of Prime Minister Shinzo Abe plans large-scale public works to bolster domestic demand and beat Japan’s long-term deflation.

As Abe has pledged to take measures to curb the strong yen and prevent prices from falling, “business and consumer sentiment has been greatly improving,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

If the Bank of Japan, which will be led by a new governor from the middle of March, takes further monetary easing steps, domestic demand could grow and corporate profits would bounce back, he said, adding, “A recovery in capital spending is likely to gain momentum.”

Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research, echoed the view, saying machinery orders temporarily fell in January but more companies are expected to increase investment given that the government has decided to expand tax breaks for those who beef up capital spending.

Orders from the manufacturing sector plummeted 13.2 percent to ¥256.8 billion in January, down for the first time in three months, while those from nonmanufacturers slid for the second straight month, down 6.3 percent to ¥409.9 billion.

The office estimated core orders will grow 0.8 percent for the three months through March, down from the 2.0 percent rise in the previous quarter.