May 17, 2013 / 12:55 AM / 5 years ago

UPDATE 2-Japan March machinery orders jump, capex outlook still murky

* Core machinery orders +14.2 pct vs f'cast +2.8 pct
    * Manufacturers forecast 1.5 pct fall in Q2 orders
    * Analysts say outlook for capex still murky

    By Kaori Kaneko
    TOKYO, May 17 (Reuters) - Japanese core machinery orders
jumped a bigger-than-expected 14.2 percent in March, the
quickest monthly pace in eight years, in a sign a weaker yen and
surging stock prices are making companies more confident about
investing in equipment.
    But manufacturers expect core orders, regarded as an
indicator of capital spending in the coming six to nine months,
to fall in the second quarter, suggesting Prime Minister Shinzo
Abe's sweeping stimulus has yet to convince companies to
substantially boost spending.
    The March increase in core orders, a highly volatile series,
was much bigger than a median market forecast for a 2.8 percent
gain and followed a revised 4.2 percent rise in February. It
also marked the biggest monthly rise in comparable data going
back to 2005, the Cabinet Office said on Friday.
    "If exports pick up, capital spending will start to take
off. We may gradually see companies increasing expenditures from
around summer or autumn," said Takeshi Minami, chief economist
at Norinchukin Research Institute in Tokyo.
    "There's a lot of hope about Abenomics pulling Japan out of
deflation. That has led to a weak yen which may boost corporate
profits. But companies won't start to increase capital
expenditures unless export volumes begin to increase, which
hasn't begun yet."
    Manufacturers surveyed by the government expect core orders
to fall 1.5 percent in April-June from the previous quarter
after flat growth in the first three months of this year, the 
Cabinet Office data showed.
    On a year-on-year basis, core orders increased 2.4 percent 
in March compared with the median estimate for a 4.1 percent
    Japan's economy expanded 0.9 percent in January-March, the
fastest growth in a year and outpacing that of the United
States, thanks to Abe's policy prescription of huge fiscal
spending and aggressive monetary stimulus. 
    Abe's policy gamble to beat the country's 15-year long
deflation has bolstered share prices and weakened the yen,
prompting consumers to spend more and helping boost revenues of
export firms.
    But companies have been reluctant to increase spending on
plant and equipment with the GDP data showing corporate
investment, seen as an essential ingredient of a sustained
recovery, falling for the fifth straight quarter.
    Still, many analysts expect expenditure to gradually pick up
as the world's third-largest economy picks up momentum.
     The government's aggressive policies to vanquish 15 years
of entrenched deflation and revive the economy have sent the
Japanese yen sliding to 4-1/2 year lows against the dollar
 and boosted share prices by 45 percent this year
to their highest level since the end of 2007.
    Last month the Bank of Japan unveiled an unprecedented
monetary expansion plan, which will inject about $1.4 trillion
into the economy in less than two years, and broadly aims to
encourage firms to become more active in the economy by
investing, hiring and raising wages, creating a virtuous circle
that would spur consumer spending and revitalise growth. 
    Friday's data suggests the policies are beginning to have
their desired effect, although the lag effects may mean it will
take some time for the evidence to show up on the ground.
    Helped by the tailwind of a depressed yen, global-spanning
firms such as Toyota Motor Corp earlier this month
raised its profit forecast for the current fiscal year as the
cheaper currency inflates overseas sales.
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