* Core orders surge 19.1 pct m/m, seen rising in Q2
* Outlook seen brighter, tax hike impact may be limited
* BOJ to keep upbeat view; no need for immediate stimulus
* Capital spending holds key to sustained economic growth
* Economy on track; BOJ to act as needed -vice econ min
(Fixes headline tag, edits bullets)
By Tetsushi Kajimoto and Stanley White
TOKYO, May 19 Japanese businesses raised orders
for machinery by the most ever in March and expect to book more
orders this quarter, another sign that capital investment may
buffer the economy from the pain of last month's sales tax hike.
Haunted by a stumble in the economy that followed when Tokyo
last lifted the tax in 1997, markets have worried that the April
1 tax rise could deal a heavy blow to policy makers' attempts to
revitalise growth after decades in the doldrums.
Monday's data and recent anecdotal evidence, however,
suggested economic resilience and backed the central bank's
conviction that near term stimulus is not needed to pull through
short term dips in growth.
Vice Economy Minister Yasutoshi Nishimura echoed the Bank of
Japan's view the economy is on track, adding that the government
and the bank stood ready to respond to any downturn stemming
from risks such as weak external demand.
"There's no gap between us and the BOJ in our views on the
Japanese economy. We need to carefully watch the pullback in
demand after the sales tax hike, but it has been moving within
expectations," he told the Reuters Japan Summit, held at the
Reuters office in Tokyo.
The record 19.1 percent month-on-month rise in core
machinery orders, a leading indicator of capital spending in the
coming six to nine months, blew past a 6.0 percent gain forecast
by economists in a Reuters poll.
The readings follow last week's first quarter gross domestic
product figures that showed surprisingly strong capital spending
- a crucial factor which helped the economy grow at its quickest
pace in over two years.
Companies surveyed by the Cabinet Office forecast that core
orders will rise 0.4 percent in April-June from the previous
quarter, which would mark the fifth straight quarter of gains.
In January-March, core orders rose 4.2 percent, the data showed.
"I thought companies would remain cautious about spending
due to uncertainty over effects of the tax hike and sluggish
exports. Therefore the solid readings come as a surprise," said
Yasuo Yamamoto, senior economist at Mizuho Research Institute.
Importantly, the data also suggests that businesses may be
starting to buy into the prospect of a sustainable economic
recovery that has eluded Japan for almost two decades.
"Companies who have long hoarded cash may be finally seeking
opportunities to make better use of their internal reserves for
raising business investment and M&As," Yamamoto said.
"Better business conditions including property markets and
low interest rates may be tempting corporate appetite for
Yamamoto said the economy should resume moderate recovery in
the summer, supported by capital spending likely remaining in an
uptrend in the coming months and as the tax hike impact holds
The BOJ is set to stick to its upbeat view of the economy at
its policy review this week and may raise its view on capital
expenditure, suggesting that no immediate expansion of monetary
stimulus is forthcoming.
BOJ READY TO ACT
Capital spending - long a weak link in Japan - is seen by
analysts as key to negotiating a temporary dip in the economy
after the sales tax rose to 8 percent from 5 percent on April 1.
In a sign of confidence in the economy, the Cabinet Office
raised its assessment of machinery orders, saying they are in a
After racing past its developed country peers in the first
half of last year, Japan's economy has had to contend with a
string of weak data in recent quarters as the effects of Tokyo's
aggressive stimulus policies faded.
The BOJ has stood pat since offering an intense burst of
monetary stimulus in April last year, pledging to double base
money via aggressive asset purchases to accelerate consumer
inflation to 2 percent in roughly two years.
Analysts expect the central bank to offer fresh stimulus in
the summer, but Governor Haruhiko Kuroda may be able to sit
tight for longer if domestic demand holds up.
Still, an underperforming export sector remains a worry.
Kuroda has acknowledged that shipments are a concern,
reiterating that the BOJ is ready to act to safeguard the
recovery after years of stagnation and falling prices.
The Cabinet Office data comes on the heels of the Reuters
Tankan survey which showed business morale slid in May but is
seen improving in the months ahead, providing evidence that the
pain from the April 1 tax rise will likely be short-lived.
However, company executives also noted that slowing growth
in China and other emerging markets have dragged on exports and
the economic recovery, echoing concern among
The March machinery orders data and signs businesses are
ploughing their profits into production and plant may provide
some breathing space for policy makers keen not to overreact.
"Higher corporate profits and easing of excess production
capacity are likely to keep capital spending in uptrend ahead,"
said Yoshiki Shinke, chief economist at Dai-ichi Life Research
Institute in Tokyo.
"Companies may also face the need to replace their ageing
plant and equipment from now on. This is among factors that will
support business expenditures."
(Editing by Shri Navaratnam)