TOKYO • Japanese orders for machinery surged to their highest level in a decade in November, in a sign businesses may finally be responding to policymakers' efforts to get companies to spend their massive cash piles to spur economic growth.
The key measure of capital expenditure was issued just as Japan's top business lobby urged companies to raise wages by 3 per cent in upcoming annual salary negotiations with unions, supporting the government's efforts to accelerate inflation.
The developments suggest Prime Minister Shinzo Abe is finally succeeding in nudging risk-shy firms to boost spending and help him stoke a virtuous circle of business investment, consumer spending and growth in the world's third-largest economy.
They also come as welcome news for the central bank, which is set to paint an optimistic picture of the economy next week to signal its next policy move would be to dial back - not ramp up - its massive monetary stimulus.
"A lot of the growth in Japan is fairly cyclical, but I want to acknowledge some progress in structural reforms," said Moody's Investors Service vice-president of sovereign ratings Christian de Guzman.
"Japan has very favourable funding conditions. This refers not only to interest rates but also savings in the household and corporate sectors."
Cabinet Office data out yesterday showed core orders for machinery, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 5.7 per cent in November from the previous month, driven by non-manufacturers.
Core orders, which exclude ships and orders from electric power utilities, handily beat a 1.4 per cent drop seen in a Reuters poll of analysts, following 5 per cent growth in October, posting the fastest rise in four months.
Analysts expect capital spending to remain in a gradual uptrend, given hefty company profits, negative interest rates, the need for labour-saving technologies to counter labour shortages and procurement for the 2020 Tokyo Olympics.
"The bigger picture is that firms are facing the most severe capacity shortages since the early 1990s," said Mr Marcel Thieliant, senior Japan economist at Capital Economics.