Japan's machinery orders jump

Japanese private-sector machinery orders rose unexpectedly in June from a month earlier and look set to grow further in the coming months, another sign that capital spending is underpinning a healthy economic recovery.
Core machinery orders, a volatile data series regarded as an indicator of capital spending in the coming six to nine months, jumped 8.5 percent in June from the previous month on a seasonally adjusted basis, government figures showed on Wednesday.
Economists had forecast a fall of 0.4 percent. In the April-June quarter, orders rose 8.9 percent from the previous quarter, the fastest pace of gains in nearly 10 years. In addition, the Cabinet Office said orders were expected to rise 4.9 percent in July-September from the previous quarter. "The figures show that companies are still keen to invest despite worries about the impact of a US economic slowdown on the domestic economy towards the end of the year," said Seiji Adachi, senior economist at Deutsche Securities.
"It's a sign that companies believe the recovery is for real and that the economy is set for a long expansion." The rise in orders for June was led by orders from the steel, electronic equipment and auto industries. The Cabinet Office upgraded its assessment on machinery orders, saying they are rising.
Compared with the same month last year, core orders, which exclude those for ships and machinery at electric power firms, were up 17.7 percent, sharply higher than a median forecast of a 6.4 percent rise in a Reuters poll.
The data suggested a strong capital spending component in April-June GDP data to be released on Friday, but economists said this would probably not be enough to alter forecasts. Economists expect real GDP to grow 0.4 percent from the previous quarter, for annualised growth of 1.8 percent.
That would be slower than 3.1 percent annualised growth in January-March. Economists have blamed rainy weather for trimming consumption in the second quarter, but the general consensus is that personal spending will remain firm on growing income. April-June GDP data is due out at 8:50 am on Friday (2350 GMT Thursday).
Japan's economy grew for the fifth consecutive quarter in the first three months of this year, with capital spending leading a modest but healthy recovery. Firms have been expanding investment for more than three years, using strong profits after paying down debts. A Bank of Japan quarterly corporate survey last month showed that big firms expected their capital spending to rise 11.6 percent in the current business year to next March.
That would be the biggest gain in 16 years. BoJ officials are wary of a possible overheating of capital spending, which could become a key factor for the central bank in deciding when and by how much it should raise interest rates. After more than five years of holding rates at zero, the BoJ raised its target overnight call rate to 0.25 percent on July 14.
BoJ Governor Toshihiko Fukui has said that future interest rate increases will be gradual and that the central bank was not seeking consecutive rate hikes, so the central bank is not expected to raise rates at a board meeting that ends on Friday.