• Reuters

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Japan’s core machinery orders rose for the third straight month in May, a welcome sign for an economy struggling to overcome the hit from the coronavirus pandemic.

The government imposed a new state of emergency in Tokyo that will run through to Aug. 22 in an attempt to control the health crisis, clouding the outlook for the economy even as activity in many other countries rebounds.

The jump in core orders indicates a modest revival in corporate spending, seen by policymakers as necessary to accelerate Japan’s tepid recovery.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, jumped 7.8% in May from the previous month, beating a 2.6% expansion forecast by economists in a Reuters poll and compared with a rise of 0.6% in April.

“The data confirmed a recovery in capital spending by manufacturers,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

“But while non-manufacturers saw quite a big rebound in orders, their starting point was different. They haven’t seen a recovery in conditions yet.”

By sector, orders from manufacturers grew 2.8%, boosted by electrical machinery, helped by demand for such investments due to a global semiconductor supply shortage.

Those from nonmanufacturers rose 10.0%, rebounding from the prior month’s sharp decline, led by other non-manufacturers and telecommunications, which saw orders rise for the first time in six months, the Cabinet Office data showed on Monday.

Separate Bank of Japan data on Monday showed Japanese wholesale prices rose 5.0% in the year to June, a sign global inflationary pressures are weighing on firms that are still facing coronavirus emergency curbs at home.

In declaring the state of emergency, Prime Minister Yoshihide Suga said last week it was key to prevent Tokyo, which is hosting the Olympic Games, from becoming a flash point of new infections.

But with the move, Suga risks hurting Japan’s economic recovery. Dai-ichi Life Research Institute estimated that the state of emergency could slash about ¥1 trillion ($9.1 billion) from gross domestic product and cut 55,000 jobs over the coming months.

Lawmakers from the prime minister’s Liberal Democratic Party have escalated calls for a new relief package, with party heavyweight Toshihiro Nikai saying an extra budget of around ¥30 trillion ($270 billion) is needed.

On Sunday, Chief Cabinet Secretary Katsunobu Kato said Japan stands ready to pump more money into the economy, providing support for businesses and people in need.

The government raised its assessment on machinery orders for the first time since December, saying they were showing signs of pickup.

From a year earlier, core machinery orders, which exclude those for ships and electricity, rose 12.2% in May, beating a 6.3% advance expected by economists.

The rise in wholesale prices in June, meanwhile, indicates higher raw material costs were weighing on corporate profits.

Households may also start to feel the pinch as recent increases in oil costs are likely to push up consumer inflation in coming months, though the rebound will be more modest in Japan than in other advanced nations due to weak demand, analysts say.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 5.0% in June from a year earlier, BOJ data showed, beating a median market forecast for a 4.7% gain.

It followed a 5.1% increase in May, which was the fastest pace of growth since September 2008, and marked the fourth straight month of year-on-year gain.

“Wholesale prices will remain under upward pressure as steady COVID-19 vaccinations continue to support the global economic recovery,” said Shigeru Shimizu, head of the BOJ’s price statistics division.

“More and more companies are being able to pass on higher costs,” mainly in sectors like steel and energy, he said.

Of the 744 items consisting CGPI, the number of items that saw prices rise in June exceeded that for price falls by 75 — up from 57 in May.

In a sign a weak yen was inflating raw material costs for firms, the yen-based import price index surged 28.0% in June to mark the fastest year-on-year gain on record.

An index gauging raw material prices jumped 49.8% in June from a year earlier, as commodities ranging from fuel oil to wood see prices spike on solid global demand.

On the other hand, domestic final goods prices — which loosely track the consumer price index — rose just 2.0% in a sign weak domestic demand was still discouraging many firms from passing on the higher costs to their corporate customers.

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