TOKYO (AFP) - Japan's finance minister trumpeted bright economic news on Friday as figures showed firms were ramping up investment in a possible sign that government stimulus was working.
"Capital spending will increase from now on," Mr Taro Aso told reporters after official data showed core machinery orders soared 14.2 per cent on-month in March.
The jump is the highest increase since April 2005 when comparable data started to be collected.
Core orders are regarded as a leading indicator of corporate capital spending. Economists say movements in the figure may reflect the outlook for the broader economy.
The data is good news for Japan's aggressive-spending government, who have unleashed a vast stimulus plan intended to help turn around an economy that has been treading water for years.
It came the day after the Cabinet Office said the economy expanded by 0.9 per cent on quarter in the three months to March, giving a respectable annualised growth rate of 3.5 per cent.
The government said in a report Friday that machinery orders were showing "moves of a gradual recovery", but figures show it expects core orders to fall 1.5 per cent quarter-on-quarter in the April-June period.
Some observers say the numbers over the last few days, along with a roaring stockmarket and a sliding yen, are proof that Prime Minister Shinzo Abe's bid to light a fire under the economy is working.
Dubbed "Abenomics", the big-spending and massive monetary easing from the central bank mark a renewed assault on the deflation that has plagued Japan for years, crimping private spending and business investment.
The stock market is up around 70 per cent since late last year, while the yen has lost around a quarter of its value over the same period.
A cheaper currency has been good news for exporters, who have seen their products become more competitive overseas and the value of their repatriated profits swell.
While the mood in corporate Japan and among consumers has taken a positive turn, some observers say it is too soon to tell if Abenomics will have a long-term effect.
"A real recovery in domestic demand will not come until Japan achieves 2-3 per cent economic growth for several years and overcomes deflation. It is too early to expect a revival of domestic demand now," said Mr Takeshi Minami, economist at Norinchukin Research Institute.
But, he added, the exporter bounce from the sliding yen was trickling through the system.
"There are rising expectations that exports will increase on the back of the weaker yen and that consumer spending will expand on higher stock prices." Japanese companies, which were squeezed by a persistently strong yen, are "becoming positive towards investing more on plants and equipment", he said.
"If overseas economies are good, it will lead the Japanese economy." However, he cautioned, the reverse could easily prove to be the case.
"The situation can turn back if foreign demand is weak and risk aversion becomes prevailing in financial markets."
Analysts say Japan needs to put some flesh on its policy bones if it is to move beyond the initial rush of enthusiasm for Abenomics, with eyes turned to a speech the prime minister is scheduled to give later on Friday.