April 11, 2013 / 12:45 AM / 7 years ago

UPDATE 1-Japan machinery orders up, capex recovery expected

* Feb core machinery orders +7.5 pct m/m vs f'cast +6.8n pct
    * Economists: recovery in capex still months away
    * May take time for BOJ's bold easing to produce results

    By Kaori Kaneko
    TOKYO, April 11 (Reuters) - Japan's machinery orders rose in
February at the fastest pace in since mid-2011 in a sign that
capital expenditure could pick up this year as business
confidence is boosted by government and central bank efforts to
end deflation.
    Core machinery orders, which help to gauge the strength of
capital spending, rose 7.5 percent in February from January,
data from the Cabinet Office showed, stronger than the median
estimate of 6.8 percent in a Reuters poll.
    Capital expenditure could start a sustainable increase from
the middle of the year, economists say, as it will take some
time before the steps the Bank of Japan and the government are
taking to end deflation starts to have an impact on spending.
    "We've bottomed out, but it will take more time for capex to
pick up," said Yasuo Yamamoto, senior economist at Mizuho
Research Institute.
    "Many companies are reviewing their plans for this fiscal
year. Since sentiment is improving due to Prime Minister Shinzo
Abe's policies, capital expenditure could start to improve,
perhaps around June."
    The rise in February was the largest since core machinery
orders rose 7.7 percent in June 2011.
    Machinery orders have been volatile in recent months,
falling 13.1 percent in January after rises of 2.8 percent and
3.9 percent at the end of 2012.
     Manufacturers have been cautious with their capital
expenditure plans due to worries about a slow recovery in
exports, but a weak yen and improving consumer sentiment could
encourage companies to invest more in plant and equipment.
    Compared with a year earlier, core orders, which exclude
those for ships and electric power utilities, fell 11.3 percent,
versus the median estimate for a 7.6 percent decline.
    Wholesale prices fell 0.5 percent in the year to March,
separate data from the Bank of Japan showed. That compared with
the median forecast for a 0.4 percent annual decrease.
    The BOJ agreed last week a radical overhaul of monetary
policy that will double the amount of government debt the
central bank holds over the next two years to spur inflation
expectations and end 15 years of nagging deflation.
    The BOJ, under new Governor Haruhiko Kuroda, wants to raise
inflation expectations so as to boost consumer spending and
encourage capital consumption, leading to a virtuous circle that
pushes consumer prices higher.
    Abe's strategy is to combine massive monetary easing with
fiscal stimulus and structural reforms to jumpstart the economy.

 (Editing by John Mair)
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