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November machinery orders take pre-tax jump

Kyodo

Core private-sector machinery orders rose a seasonally adjusted 9.3 percent month on month in November to their highest level in over five years, the government said Thursday, with many companies eager to bolster investment ahead of the April sales tax hike.

The orders, excluding those for ships as well as those from utilities because of their volatility, came to ¥882.6 billion, the highest since July 2008, before the economy waned against the backdrop of the global financial crisis, the Cabinet Office said.

The orders, widely regarded as a leading indicator of capital spending, increased for the second straight month, it said.

The government upgraded its basic assessment, saying orders are “on a growth trend.” Last month, it said the orders “have shown signs of moderately growing.”

The upturn suggested business investment, accounting for around 15 percent of Japan’s gross domestic product, will gain momentum for the next few months before the consumption tax is raised to 8 percent from 5 percent in April, analysts said.

But capital spending, which Prime Minister Shinzo Abe views as a pillar of economic growth, may weaken after the tax hike, in turn hurting a broader economy that is on the verge of overcoming nearly two decades of deflation, they added.

“Machinery orders have been riding high on the back of economic recovery and a rush in demand prior to the tax hike,” said Koya Miyamae, senior economist of SMBC Nikko Securities Inc.

“Private business investment is likely to continue to grow . . . but it is expected to fall following the tax hike,” he added.

In November, orders from the manufacturing sector gained 6.0 percent month on month to ¥353.7 billion, up for the first time in two months, while those from nonmanufacturers climbed for the second month in a row, up 8.1 percent to ¥550.6 billion.

By industry, orders from the pulp and paper industry and the oil and coal sector were robust among manufacturers.