Japan machinery orders point to tepid rebound from feared recession

Core machinery orders in Japan rose in September due to gains in orders for equipment used in construction, chemicals and public transport sectors.
Core machinery orders in Japan rose in September due to gains in orders for equipment used in construction, chemicals and public transport sectors.PHOTO: REUTERS

TOKYO (REUTERS) - Japan's core machinery orders rose in September for the first time in four months, but companies forecast only modest gains in orders in October-December, a sign the economy's recovery from an expected recession could be slow.

Core machinery orders, a leading indicator of capital expenditure, rose 7.5 per cent in September versus the median estimate for a 3.3 per cent increase, and followed a 5.7 per cent decline in the previous month.

However, companies forecast orders will rise 2.9 per cent in October-December, which is a small rebound from a 10.0 per cent decline in July-September. A separate Reuters survey also showed companies do not expect growth to pick up until next year.

Many policymakers are counting on gains in business investment to create new jobs, increase productivity and drive growth, so the machinery orders data suggest the government still faces an urgent task in convincing companies to invest.

"Companies are taking a very cautious stance toward capital expenditure," said Norio Miyagawa, a senior economist, Mizuho Securities.

"The health of overseas economies, particularly China, is one factor. Also, it's difficult for companies to have the conviction that the domestic economy will grow rapidly."

Core machinery orders, which exclude those for ships and power generators, rose in September due to gains in orders for equipment used in construction, chemicals and public transport sectors, Cabinet Office data showed on Thursday (Nov 12).

Japan's economy probably slipped into a technical recession in July-September due to a drop in capital spending and soft external demand and private consumption, a Reuters poll showed.

The economy is seen to have contracted at an annualised rate of 0.2 per cent in the third quarter, following a 1.2 per cent contraction in April-June, the poll of 19 economists showed.

A technical recession is defined as two consecutive quarters of economic contraction. The GDP is due Nov 16.

Most Japanese companies do not expect the flagging economy to recover until well into next year at the earliest, as a China-led slowdown keeps overseas demand weak and consumer spending at home remains sluggish, a Reuters survey showed.

The BOJ held off from easing monetary policy at a crucial meeting last month but did delay the timing of meeting its 2 percent inflation target as wages have been slow to rise and as low oil prices put downward pressure on consumer prices.

The BOJ has argued that pessimism on the economy is unwarranted because its closely-watched Tankan corporate sentiment survey shows that capital expenditure plans are strong.