UPDATE 1-Japan machinery orders jump, point to capex recovery

Wed Mar 12, 2014 8:27pm EDT

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* Jan core machinery orders +13.4 pct m/m vs f'cast +7.0 pct
    * Machinery orders rise at fastest pace since March 2013
    * Data supports optimism about pickup in business investment
    * Capex seen as essential for faster economic growth

    By Stanley White
    TOKYO, March 13 (Reuters) - Japan's core machinery orders
rose in January at the fastest pace in almost a year, rebounding
from a record decline in the previous month, in a positive sign
that long-dormant business investment will start to accelerate
and contribute to the broader economy.
    The 13.4 percent month-on-month increase in orders - a
leading indicator of capital expenditure - was faster than the
median estimate by economists for a 7.0 percent rise, and
supports the Bank of Japan's argument that business investment
will quicken as domestic demand strengthens.
    The data could ease worries that Prime Minister Shinzo Abe's
reflationary policies are running out of momentum and suggest
the economy can recovery quickly after an increase in the sales
tax next month.
    "Companies are more confident that the economic slowdown
expected after the tax hike will be temporary and that earnings
will continue to improve," said Shuji Tonouchi, a senior
fixed-income strategist at Mitsubishi UFJ Morgan Stanley
Securities.
    "Capital expenditure will continue to recover gradually as
the year progresses," he said.
    Orders from manufacturers rose 13.4 percent in January from
the previous month, the Cabinet Office data showed on Thursday.
    Orders from the services sector rose 12.1 percent, showing
that demand for business investment is spreading through all
sectors of the economy.
    Compared with a year earlier, core orders, a highly volatile
data series, increased 23.6 percent in January, more than the
median estimate for an 18.8 percent annual increase.
    The BOJ upgraded its assessment of capital expenditure on
Wednesday, encouraged by increased shipments of capital goods.
 
    Officials in the government and the central bank have said
capital expenditure is essential to pull Japan out of deflation
and boost growth, because investment in factories and equipment
creates jobs, which can push up wages and support consumption
    Capital expenditure was weaker than expected last year as
some companies doubted that a pick-up in domestic demand would
last into this year.
    Now that consumers are buying more goods before an increase
in the sales tax rate on April 1 and wages are rising,
policymakers hope this will encourage companies to expand
capacity to meet stronger consumer demand.
    Abe, who took office late in 2012, had initial success with
fiscal stimulus spending and monetary easing, but some investors
are starting to question whether Abe can carry out structural
changes needed to ensure long-lasting economic growth.
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