May 18, 2015 / 12:02 AM / 5 years ago

Japan machinery orders rise, but weak outlook hampers economic rebound

TOKYO (Reuters) - Japan’s core machinery orders grew in March for the first time in two months but they are seen slipping in the current quarter, suggesting that weak capital spending could further sap momentum from an economy struggling to rebound from a recession.

Cranes are parked in a company compound in Tokyo, February 12, 2015. REUTERS/Thomas Peter

The 2.9 percent month-on-month rise in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, beat economists’ median estimate of a 1.8 percent gain, Cabinet Office data showed on Monday.

That followed a revised 1.4 percent drop in February.

The data comes ahead of a government report on gross domestic product which is expected to show two straight quarters of moderate growth in the world’s third-largest economy following last year’s recession.

The worry for policy makers is the weak outlook for capital spending which is seen as crucial to driving a virtuous cycle of higher income, consumer spending and robust economic growth.

Companies surveyed by the Cabinet Office forecast that core orders, which exclude those of ships and electric power utilities, will fall 7.4 percent in the current quarter.

In January-March, core orders rose 6.3 percent from the prior quarter, up for three quarters in a row and marking the biggest gain in seven quarters.

The Cabinet Office maintained its assessment of machinery orders, saying they show a moderate pickup move.

The GDP report on Wednesday is expected to show capital spending grew 0.8 percent quarter-on-quarter, after sliding for three straight quarters through December.

Japanese firms have been slow to implement their solid capital spending plans despite record profits, given the uncertain economic outlook.

On Friday, Bank of Japan Governor Haruhiko Kuroda said the economy was gradually emerging from recession, but he acknowledged last year’s sale tax hike dealt a bigger blow on growth than initially expected.

The BOJ kept monetary policy steady last month even as it

cut its price forecasts as slumping oil costs and soft

consumption ground inflation to a halt, pushing it further away

from the bank’s ambitious 2 percent target.

Compared with a year earlier, core orders rose 2.6 percent in March, versus a 7.2 percent decline seen by analysts in the Reuters poll.

Editing by Shri Navaratnam

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