Business / Economy

August machinery orders bounce back from plunge in May

Kyodo

Core private-sector machinery orders rose a seasonally adjusted 4.7 percent from a month earlier in August to ¥807.8 billion, data showed Thursday, prompting the government to upgrade a leading indicator of capital spending.

Core orders, excluding those for ships as well as from utilities because of their volatility, climbed for the third straight month after orders rose 3.5 percent in July and 8.8 percent in June after a record plunge of 19.5 percent in May, the Cabinet Office said in upgrading its assessment.

The figures are closely watched because Prime Minister Shinzo Abe views business investment — which accounts for around 15 percent of gross domestic product — as a pillar of the economic growth needed to beat nearly two decades of deflation.

The office raised its view on the orders for the first time in five months in August, saying they “have shown signs of a gradual pickup.” Last month, it said they were “moving in a seesaw manner.”

Some analysts say Thursday’s results signal that capital spending will start to grow later this year, after the April 1 consumption tax hike choked domestic demand and blurred the economic outlook.

“Machinery orders are expected to have risen during the July-September period,” said Junichi Makino, chief economist at SMBC Nikko Securities Inc.

“Given that, business investment is likely to recover in a relatively strong manner after next year,” he said.

But Takeshi Minami, chief economist at the Norinchukin Research Institute, said many companies will likely become more reluctant to boost capital spending down the road as Japan’s economy has already fallen into a recessionary phase.

“If the economy remains sluggish, firms may cut their investment plans,” Minami said.

Business investment dropped 5.1 percent from the previous quarter during the April-June quarter, sliding at its fastest pace in five years and logging the first decline in five quarters, according to GDP data released last month.

Meanwhile, Japan’s key index of indicators designed to show the current state of the economy fell in August, leading the government to issue an assessment Tuesday that the reading suggests the economy may have entered a contraction phase.

In August, machinery orders from the manufacturing sector fell for the first time in three months, down 10.8 percent to ¥324.6 billion, while those from nonmanufacturers gained 10.7 percent to ¥470.4 billion on the back of a one-off increase in big orders from the leasing industry.

Total orders, including those from the domestic public sector and abroad, fell 2.2 percent to ¥2.15 trillion.

Overall overseas demand for Japanese machinery, an indicator of future exports, jumped 29.1 percent to ¥1.05 trillion, after plummeting 42.6 percent in July.

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