Japan’s core private-sector machinery orders jumped a seasonally adjusted 10.5 percent on month in May to their highest reading in 4½ years, the government said Thursday, signaling the yen’s slide has raised hope for recovery in exports and prodded companies to boost investment.
After a fall in April, the orders — regarded as a leading indicator of capital spending — came to ¥799.2 billion, the highest since October 2008, when the country’s economy started to wane against a backdrop of the global financial crisis, the Cabinet Office said.
It was also the third-sharpest month-on-month increase in the orders, which exclude those for ships and from utilities because of their volatility, since comparable data became available in April 2005.
But the Cabinet Office left unchanged its basic assessment of core machinery orders for the fifth straight month, saying they are “showing signs of moderately picking up,” in light of large swings in recent data.
Analysts said business investment may return to a sustainable growth path, as Prime Minister Shinzo Abe’s policies, dubbed “Abenomics,” entailing bolder monetary easing and massive public spending, are rippling through the real economy.
“Demand is expected to grow both at home and abroad on the back of expansion of consumption and the weaker yen, improving corporate profits across the board,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.
Under the circumstances, many firms “are likely to gradually bolster investment that could foster productivity,” he said.
Machinery orders from the manufacturing sector rose 3.8 percent to ¥297.1 billion, while those from nonmanufacturers surged the largest-ever 25.4 percent to ¥560.7 billion, both after a decline in April.
In particular, orders from the chemical industry soared 48.2 percent and the finance and insurance industry skyrocketed 106.3 percent amid expectations of an economic recovery, the office said.
Overseas demand for overall Japanese machinery — an indicator of future exports — grew 10.3 percent to ¥906.6 billion, following a 19.9 percent drop in April, it said.
Other recent economic data have also strengthened the view that Japan’s capital spending, which has stagnated over the past year, may make a strong rebound.
The Bank of Japan’s quarterly “tankan” survey released earlier this month showed large companies in all industries plan to boost their investment by 5.5 percent in fiscal 2013 through March 2014, against the 2.0 percent decline indicated in the previous survey.
The upbeat plan underscored that their prospects have improved due mainly to the yen’s depreciation.
The yen plunged in May against the dollar by 26.8 percent from a year earlier on an average basis and the euro by 28.5 percent, the Finance Ministry said.
A falling yen usually supports exports, a key engine of economic growth, by making Japanese firms’ products cheaper abroad and increases the value of overseas revenue in yen terms.
Some economists, however, pointed out that downside risks to the world’s third-largest economy have cropped up, such as fears about the future course of emerging economies, hampering growth in the nation’s business investment.
“It is difficult to expect capital spending to pick up at an accelerated rate in Japan as the Chinese economy is leveling off, though the U.S. economy has become steady over time,” said Takeshi Minami, chief economist at Norinchukin Research Institute.