December 11, 2013 / 12:35 AM / 6 years ago

UPDATE 1-Japan Oct core machinery orders rise, bode well for capex

* Oct core orders +0.6 pct, matching f’cast

* Data shows better chance of sustained economic recovery

* Some analysts cautious of outlook on tax hike pain

By Leika Kihara

TOKYO, Dec 11 (Reuters) - Japan’s core machinery orders rose 0.6 percent in October, rebounding from a fall in the previous month and boding well for stronger capital expenditure — a key element in sustaining the current economic recovery.

The data may heighten the view that Japan’s economy will accelerate next year after weathering the pain from an increase in the sales tax hike in April.

The rise in core orders, a highly volatile series regarded as a leading indicator of capital spending, matched the median forecast from a Reuters poll and marked a turnaround from a 2.1 percent decline in the previous month.

“Corporate earnings are improving and companies have held back on investment for so long that capex will continue to recover,” said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.

“The positive economic cycle of export growth leading to capital expenditure, more jobs and higher wages is working.”

Compared with a year earlier, core orders increased 17.8 percent, against the median estimate for a 15.0 percent gain.

Capital spending has been a weak spot in Japan as Prime Minister Shinzo Abe struggles to spur business investment and wage increases at many companies, which remain unconvinced that his reflationary policies will have a lasting impact.

The economy is now enjoying a temporary boost from increased demand ahead of an increase in sales tax, but many economists say capital expenditure will need to grow faster next year to help the economy achieve self-sustaining growth.

Japanese business confidence improved in the three months to December and is predicted to continue rising, a Reuters poll showed on Monday, adding to evidence of a steady recovery in the world’s third-largest economy.

The positive outcome suggests the central bank’s closely watched “tankan” quarterly survey, due out on Dec. 16, will show a continued recovery in business sentiment as the benefits of Premier Abe’s stimulus policies broaden.

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