• Bloomberg


Machinery orders rose in May at their fastest pace in four months, government data showed Thursday in a sign that companies are increasing spending to restore businesses and production disrupted by the March 11 quake and tsunami.

Factory orders, an indicator of capital spending in three to six months, increased 3 percent in May from April, the Cabinet Office said, matching the median forecast of 31 economists.

Companies are forecasting profits to recover later this year and stepping up spending plans as manufacturers restore facilities and the government rolls out stimulus to rebuild from the disaster. Komatsu Ltd., the world’s second-largest construction machinery maker, said reconstruction plans are spurring demand.

“Companies’ willingness to spend on plant and equipment hasn’t been dampened much by the earthquake,” Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, said before the report came out. “Looking ahead, orders will likely increase because of demand for rebuilding.”

The Bank of Japan’s “tankan” survey last week showed large companies plan to boost capital spending 4.2 percent in fiscal 2011, exceeding analysts’ forecasts for a 2.4 percent increase. Industrial production rose at its fastest pace in more than 50 years in May, led by carmakers, a government report showed last week.

Efforts to rebuild the damaged areas are spurring demand for excavators and wheel loaders. Domestic orders increased more than 30 percent in April-June from a year earlier, Komatsu Chief Executive Officer Kunio Noji said June 30.

“There will be much rebuilding work, given the damage is more extensive than the Kobe earthquake,” Noji said, referring to the 1995 quake that affected a smaller area and didn’t induce tsunami.

The government estimated last month that the damage to buildings, roads and other infrastructure from the March disaster will be around ¥16.9 trillion, about 1.8 times more than the damage in the Kobe quake.

Sony Corp. plans to spend ¥120 billion in the fiscal year ending next March to boost production capacity of image sensors, Executive Deputy President Hiroshi Yoshioka said last week.

The economy shrank at a 3.5 percent annualized pace in the three months through March, the second quarterly contraction, as consumer spending and corporate investment slumped in the aftermath of the quake.

A further 3 percent shrinkage is expected in the second quarter, before growth resumes in the second half of the year, according to the median forecast of economists in a Bloomberg News survey.

Still, signs of slowdowns overseas may make it difficult for Japan to count on demand from abroad to pull the economy out of the slump after the temblor.

“The key to Japan’s recovery is whether the overseas economy will return to a recovery path later this year,” Junko Nishioka, chief economist at RBS Securities, said before the report. “If the slowdown in global demand becomes prolonged, companies may revise down their business outlook.”

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