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April-June machinery orders log sharpest pace since ’08

Kyodo

Core private-sector machinery orders in the April-June quarter grew at their quickest pace in around five years as the yen’s slide improved the profitability of exporters and encouraged companies to beef up investment, the government said Tuesday.

But the orders, which exclude those for ships as well as those from utilities because of their volatility, were down in June and are expected to dive in the July-September quarter, the Cabinet Office said, suggesting uncertainty over whether capital spending will get on a full-fledged recovery path.

The orders, regarded as a leading indicator of business investment, rose 6.8 percent on quarter to ¥2.2999 trillion in the three months through June, up at their sharpest pace since the July-September period in 2008 before Japan’s economy started to wane amid the global financial crisis that year.

It was also the first climb in five quarters and the second-sharpest quarter-on-quarter growth since comparable data first became available in April 2005.

The results prompted the office to upgrade its basic assessment of the orders for the first time since December, saying they are “picking up moderately.” It said last month the orders are “showing signs of moderately picking up.”

Core machinery orders may have grown as Prime Minister Shinzo Abe’s policies of entailing bolder monetary easing and massive public spending have been rippling through the real economy, a Cabinet Office official said.

In particular, the Bank of Japan’s drastic credit easing pushed the yen down. A falling yen usually supports exports by making Japanese firms’ products cheaper abroad and increases the value of overseas revenue in yen terms.

The orders, however, fell a seasonally adjusted 2.7 percent on month to ¥777.4 billion, down for the first time in two months, the office said.

It also estimated that orders, which Abe’s administration is closely watching as it sees capital spending as a pillar of economic growth, will shrink 5.3 percent from the previous quarter in the three months through September.

Analysts took a slightly dim view of business investment, saying it is unclear whether companies will continue to expand production capacity by constructing new factories or purchasing machines, with the economic outlook becoming cloudy.

“Emerging economies are facing downside risks as the United States is likely to taper off its monetary stimulus measures and the Japanese economy may stall if a sales tax hike is implemented as planned,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Given the prospects, it is difficult to say that firms are in an environment where they can actively boost capital spending,” Minami added.

Other data have also indicated business investment is tepid, with the gross domestic product data released Monday by the Cabinet Office showing investment fell 0.1 percent on quarter in the April-June period, marking the sixth quarterly loss.

Economic and fiscal policy minister Akira Amari said at a press conference on the same day that Abe’s government will make every effort to bolster capital spending, which accounts for around 15 percent of Japan’s GDP.

In June, orders from the manufacturing sector gained 2.4 percent on month to ¥304.2 billion, up for the second straight month, while those from nonmanufacturers declined for the first time in two months, plunging 17.5 percent to ¥462.3 billion.

Overseas demand for overall Japanese machinery, an indicator of future exports, decreased 16.7 percent to ¥755.3 billion, following a 10.3 percent jump in May, the office said.