* Dec core machinery orders -15.7 pct m/m vs forecast -4.1
* Core orders +1.5 pct q/q in Q4, seen -2.9 pct in Q1
* Capex holds key for success of 'Abenomics', sustained
* Companies hoard cash as remain wary of boosting spending
By Tetsushi Kajimoto
TOKYO, Feb 12 Japan's core machinery orders
suffered their steepest fall on record in December, a worrying
sign that the manufacturing sector is not doing the heavy
lifting required for a durable recovery in the world's
The 15.7 percent slump in orders, a leading indicator of
capital expenditure, was much worse than a projected 4.1 percent
decline and was the largest in comparable data available from
fiscal year 2005.
The data could fuel scepticism of Prime Minister Shinzo
Abe's reflationary policies, known as "Abenomics", which has
combined a massive injection of fiscal and monetary stimulus to
pull the economy out of a decades-long slump.
Tokyo has yet to make structural reforms and foster
confidence in growth that could convince manufacturers, which
have steadily moved offshore to escape a stagnant economy and
rising costs, that they should spend more at home instead of
Last week, Denso Corp, one of the world's leading
auto parts makers, raised its capital spending target for the
year to end-March to 305 billion yen ($2.98 billion) from 280
billion yen, but said the additional money would be used mainly
to boost production capacity overseas.
"We're having particular success expanding sales overseas,
while another factor was that one of our customers moved forward
a bit the timeframe for their buildup to production, but this
was also focused overseas," Denso Executive Director Kenichiro
Ito told an earnings briefing.
It underscored the challenges facing Japanese policymakers
as a central plan of Abenomics is to spur capital spending to
create a virtuous cycle of job creation, higher wages and
The aggressive stimulus has delivered some success, with
the economy rebounding over the past year, consumer confidence
rising and inflation accelerating to a five-year peak to the
half-way point of the Bank of Japan's 2 percent goal.
However, the reluctance of manufacturers to ramp up their
capital spending at home threatens to erode the economic gains
made in the past year.
"The data confirmed companies remain wary of boosting
capital spending," said Takeshi Minami, chief economist at
Norinchukin Research Institute in Tokyo.
"Non-manufacturers are turning cautious after leading
capital spending last year as consumers rush to buy ahead of a
sales tax hike. Now manufacturers hold the key for the outlook
of capital spending," he said.
Abenomics has so far failed to come up with reform steps
like a long called-for cut in the effective corporate tax rate.
Unless Abe takes such big steps to encourage business activity,
manufacturers will continue to shift production abroad in favor
of business investments at home.
Japan's effective corporate tax rate is at some 35 percent,
among the highest in the developed world and much higher than
other Asian economies that are attracting Japanese investments.
In another sign of the uphill task facing policymakers,
wages are lagging behind the ongoing economic recovery. Recent
data showed wage earners cash earnings stopped falling in 2013
for the first time in three years but they remained mired at
The Cabinet Office data on Wednesday also included a survey
that forecast 2.9 percent fall in orders for January-March -
which would be the first drop in four quarters. Still, it also
showed the value of core machinery orders at 2.4 trillion yen
($23.44 billion) in October-December, the highest since the
third quarter of 2008, when the Lehman crisis triggered the
global financial crisis.
The latest monthly Reuters Corporate Survey, conducted last
month, was similarly encouraging. It showed that a quarter of
Japanese firms polled plan to raise capital spending in the next
financial year ending March 2015, although the near term looks
Much of the big spending is occurring in the
Service-sector firms have increased output before a sales
tax increase scheduled for April, though analysts expect these
industries to lose momentum as demand runs its course.
Yamato Holdings Co, Japan's largest parcel delivery
company, is boosting spending 61 percent to 85 billion yen in
the year to end-March as it builds out warehousing and logistics
centres across Japan.
However, companies have been cautious about opening the taps
further on spending despite BOJ data that shows corporate Japan
sits on a cash pile of some 220 trillion yen.
Capital spending has been anaemic for years, with Japanese
firms hesitant to boost investment on plants and equipment,
because of a deep-rooted view that Japan would remain mired in
deflation and sustained economic recovery is far from assured.
The BOJ, which holds a regular policy review next week, has
kept policy steady after embarking on an aggressive stimulus
last April, pledging to double base money via aggressive asset
purchases to spur inflation to 2 percent in roughly two years.
Gross domestic product data due on Feb. 17 is likely to show
the economy expanded 0.7 percent in October-December, or 2.8
percent annualised, with capital spending rising 1.9 percent to
mark a third straight quarter of gains, according a Reuters poll