Core private-sector machinery orders gained for the second month in a row in July, prompting the government on Monday to upgrade its basic assessment of the key indicator for the first time in nine months.
The orders, widely taken as a leading indicator of future capital spending, rose 4.9 percent to ¥891.9 billion, due partly to robust orders from the nonmanufacturing sector, following an 8.3 percent jump in June, the Cabinet Office said.
Core machinery orders “have shown movements of picking up,” the office said. Last month, it said they were “at a standstill.”
The government now projects orders will climb 5.2 percent in the quarter ending in September.
The figures are being closely watched. Prime Minister Shinzo Abe views business investment, which accounts for around 15 percent of Japan’s gross domestic product, as a pillar of economic growth.
In July alone, orders from the nonmanufacturing sector climbed 8.6 percent from a month earlier to ¥525.1 billion, supported by large orders from the telecommunications industry.
Orders from the manufacturing sector, meanwhile, were edged up 0.3 percent to ¥367.7 billion, led by big orders from the iron and steel sector.
Machinery orders are likely to be buoyed by infrastructure demand for the 2020 Tokyo Summer Olympics and the tourism boom.
The government’s latest fiscal stimulus push, worth over ¥28 trillion, also calls for capital investment by the private sector to revitalize the domestic economy and beat chronic deflation.
But some analysts are skeptical about whether machinery orders will continue to grow, saying the corporate sector may face a slowdown in exports in the aftermath of Britain’s decision late June to leave the European Union.
The yen, regarded as a relatively safe asset, is expected to remain on an upward trend versus other major currencies because the so-called British exit vote has blurred the global economic outlook, which will hurt expansion in exports, they said.
“A slowdown in the world economy, a stronger yen against the dollar, and weak domestic demand have hampered growth in corporate profits, gradually making companies wary of boosting business investment,” said Keisuke Okamoto, an economist at the Daiwa Institute of Research.
Overseas demand for Japanese machinery, an indicator of future exports, plunged 11.7 percent to ¥724.8 billion in July, signaling that the appreciation of the yen has weighed on the country’s export-oriented manufacturers.
A rise in the yen usually drags down exports, because exporters’ overseas revenues and profits are dented in yen terms when repatriated.
Total orders, including those from the domestic public sector and abroad, fell 2.8 percent to ¥2.15 trillion.
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