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Machinery orders see best surge since 2008

5.4% rise in August said to signal economy is gaining strength

Bloomberg

In a sign of strengthening economic revival, machinery orders jumped to ¥819.3 billion in August, the highest since 2008, when the world was beset by a financial crisis.

Orders excluding those for ships and power generation equipment rose 5.4 percent from the previous month, more than double the 2.5 percent median forecast in a Bloomberg News survey of 28 economists.

While large bookings can make the numbers volatile, Credit Suisse Group AG. said Thursday’s data confirm an “upward trend” in capital spending.

Prime Minister Shinzo Abe is gambling that the economy’s momentum and ¥5 trillion in extra stimulus will be enough to prevent a sales tax increase scheduled for April from derailing a recovery driven by his policies dubbed “Abenomics.”

Thursday’s numbers build on a Bank of Japan “tankan” report released Oct. 1 that showed confidence among large manufacturers is at its highest since the early stages of the global credit crisis in 2007.

“Capital spending is on a recovery trend,” said Minoru Nogimori, an economist at Nomura Securities Co. “Japan’s economic recovery is looking steady.”

The Cabinet Office raised its assessment of machinery orders, saying they are picking up.

In a note, Barclays PLC analysts said nonmanufacturing firms were leading the recovery in capital spending and key focuses will be on when improvements will spread to manufacturers and when the government will introduce tax breaks for expenditures.

After unleashing fiscal and monetary stimulus, Abe’s prospects of achieving a longer-term revival may depend on firms raising wages and investment, instead of sitting on piles of cash.

Nogimori said that weakness in the yen may help offset the blow to the economy from next year’s sales tax increase to 8 percent from the current 5 percent, by supporting the nation’s exporters. “As long as exports hold steady, companies may continue to spend,” he said.

The International Monetary Fund said this week that the BOJ is likely to reach its 2 percent inflation goal later than the targeted two years. Excluding the effect of the sales tax increase, inflation “is projected to move up only very gradually, reaching the 2 percent target sometime in 2016-17,” the IMF said in a report.

Elsewhere in Asia, the Bank of Korea on Thursday cut its forecast for South Korea’s growth in 2014 to 3.8 percent from a previous 4 percent estimate, while leaving its benchmark interest rate unchanged for a fifth month. In Australia, the unemployment rate unexpectedly declined in September, adding to evidence a two-year interest rate-cutting cycle is boosting demand.

Chinese Premier Li Keqiang said China is paying “great attention” to the U.S. debt ceiling issue, adding his voice to official concern that wrangling over a borrowing limit risks a default in the world’s biggest economy.