Japan's machinery orders bounce back

An assembly line of V6 engines at a Nissan plant in Fukushima. Forecasts for gains in machinery orders in July-September suggest that the economy could pick up from what is likely to be a subdued performance in April-June.
An assembly line of V6 engines at a Nissan plant in Fukushima. Forecasts for gains in machinery orders in July-September suggest that the economy could pick up from what is likely to be a subdued performance in April-June.PHOTO: REUTERS

TOKYO • Japanese machinery orders rose more than expected in June in a sign that companies are gradually becoming more willing to increase capital expenditure.

Companies also expect core machinery orders, a leading indicator of capital expenditure, to rise in the July-September period, suggesting that business investment is starting to stabilise after a rocky performance in the previous quarter.

Prime Minister Shinzo Abe has compiled a stimulus package that focuses on infrastructure, which should support capital spending heading into next year, but risks remain that overseas economic turmoil could curb investment.

"There have been some concerns about overseas economies and a strong yen hurting earnings, but capital expenditure seems to be holding up," said Mr Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley. "Companies are certainly not becoming more cautious, but we need to keep an eye on the trend from here on."

Core machinery orders rose 8.3 per cent, well ahead of the median estimate for a 3.1 per cent increase, Cabinet Office data showed yesterday. Manufacturers' orders rose 17.7 per cent, while orders from the service sector rose 2.1 per cent, the data showed. Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 5.2 per cent in July-September, which compares with a 9.2 per cent decrease in April-June.

Mr Abe's Cabinet last week approved a stimulus package with 13.5 trillion yen (S$179 billion) in fiscal measures as a precaution in case Britain's exit from the European Union undermines global economic conditions. Many policymakers and economists have said capital expenditure is crucial because it creates jobs and increases productivity, both of which Japan's economy needs to be more vibrant.

  • LOOKING UP

    8.3%

    Rise in core machinery orders, more than the median estimate for a 3.1 per cent increase.

    17.7%

    Rise in manufacturers' orders.

    2.1%

    Rise in service sector orders.

Forecasts for gains in machinery orders in July-September suggest that the economy could pick up from what is expected to be a subdued quarterly performance in April- June. GDP is forecast to expand at an annualised rate of 0.7 per cent in April-June, analysts predict, following 1.9 per cent annualised growth in the first quarter.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 11, 2016, with the headline 'Japan's machinery orders bounce back'. Print Edition | Subscribe