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Machinery orders jump 14.2%, sharpest since ’05

Kyodo

Core private-sector machinery orders jumped a seasonally adjusted 14.2 percent in March, indicating the weaker yen and higher stocks are starting to prompt companies to boost investment, the government said Friday.

The orders, which exclude those for ships and from utilities because of their volatility, climbed for the second-straight month to ¥793.1 billion, the Cabinet Office said, rising much faster than market expectations.

It was the sharpest month-on-month growth in orders, regarded as a leading indicator of capital spending, since officials started compiling comparable data in April 2005.

The results suggested business investment is likely to begin recovering, some analysts said.

“Exports have been rebounding and corporate performance has been improving, which will help increase capital spending from mid-2013,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.

Finance Minister Taro Aso expressed confidence that Prime Minister Shinzo Abe’s economic spiel, dubbed “Abenomics,” centering on radical monetary easing and fiscal spending binges, could make firms willing to beef up investment further.

“Capital spending will increase from now on” as government expenditures are expected to bolster domestic demand and conquer prolonged deflation, Aso said at a news conference.

In March, orders from the manufacturing sector surged 13.3 percent to ¥308.7 billion, up for the second month in a row, while those from nonmanufacturers also rose for the second consecutive month, soaring 14.3 percent to ¥475.9 billion.

In particular, orders from the petroleum and coal industries and the finance and insurance industries grew on expectations for a recovery, the office said.

Overseas demand for overall machinery, an indicator of future exports, skyrocketed 52.1 percent on month, compared with a 1.0 percent gain in February and a 3.7 percent drop in January, it said.

Looking ahead, the office estimated core orders would shrink 1.5 percent in the three months through June following the sharp gain in March. They were almost flat in the previous quarter.

The Cabinet Office left unchanged its basic assessment of core machinery orders, saying they are “showing signs of moderately picking up.”

Some economists take a cautious view of business investment, with concern growing that if Japan’s long-term interest rates continue to rise, they could discourage firms from borrowing and boosting capital spending.