Core private-sector machinery orders surged by a record 19.1 percent in March in a sign that many companies brought forward investment outlays ahead of the April 1 consumption tax hike.
The orders rose after a 4.6 percent fall in February, showing the strongest seasonally adjusted monthly increase since comparable data became available in April 2005, the Cabinet Office said. Orders for ships and from utilities were excluded because they are volatile.
The value of the orders, widely regarded as a leading indicator of capital spending, came to ¥936.7 billion, the highest since June 2008, before the collapse of the U.S. housing market triggered the global financial crisis.
With Prime Minister Shinzo Abe’s government taking unprecedented steps to bolster domestic demand to end nearly two decades of deflation, orders soared 11.5 percent from the previous year to ¥9.70 trillion in fiscal 2013, also a record pace.
The government upgraded its basic assessment of the orders to state that they are “on a growth trend.”
Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, said machinery orders may continue to rise, given that the performance of both manufacturers and nonmanufacturers is “clearly improving.”
But other analysts said business investment, which Abe sees as a pillar of economic growth, is unlikely to rapidly expand down the road, amid concern that the consumption tax hike to 8 percent from 5 percent will choke off personal spending and weigh on the nascent economic recovery.
“Companies are set to cautiously watch how much (the tax hike) will cool demand and when demand will fully bounce back,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.
“Data related to capital spending are expected to become lackluster during the April-June period,” he added.
The Cabinet Office estimated core orders will edge up only 0.4 percent in the three months through June, compared with 4.2 percent growth in the previous quarter.
In March, orders from the manufacturing sector skyrocketed 23.7 percent from a month earlier to ¥384.6 billion, while those from nonmanufacturers rose 8.5 percent to ¥515.1 billion.
By industry, orders from the transport machinery sector including aircraft were robust, the office said.
Overseas demand for overall Japanese machinery, an indicator of future exports, climbed 3.2 percent to ¥942.9 billion.
The world’s third-largest economy rebounded for the sixth quarter in a row from January to March, as Abe continued to push his “Abenomics” policies, which include drastic monetary easing by the Bank of Japan, massive fiscal spending and promises of structural reform.
The government-affiliated Japan Center for Economic Research, however, said last week that Japan’s gross domestic product is forecast to contract by an annualized 3.8 percent in real terms in the April-to-June quarter, citing the average projection of 42 private-sector economists.
If the economy stalls, Abe’s government may fail to achieve its goal of augmenting total capital spending by 10 percent during the next three years. That would bring it to around ¥70 trillion, equivalent to the level seen before the 2008 financial crisis.