TOKYO: Japan’s core machinery orders fell 1.7% in January from the previous month, underscoring the challenges facing the government as it attempts to nudge firms into boosting spending on wages and equipment with its aggressive stimulus policies.
Nonetheless, emerging signs of a steady pick up in exports have some analysts taking a more sanguine view of the outlook for capital spending even as the economy struggles to motor on from last year’s recession.
Indeed, the decrease in machinery orders was smaller than a median market forecast for a 4.1% drop, and the government said the decline was largely payback for the 8.3% rise in December – the fastest pace in six months.
Capital spending is recovering, although at a slower pace than initially thought,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. “There are emerging signs of recovery in exports so capital expenditure will pick up.”
Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, increased 1.9% in January, data by the Cabinet Office showed on Thursday.
Capital spending and wage growth hold the key to the ultimate success of Prime Minister Shinzo Abe’s policy recipe dubbed “Abenomics” aimed at generating a virtuous cycle of private-sector-led growth.
The Bank of Japan, which is aiming to end 15 years of deflation with a massive stimulus drive, has also been urging companies to increase wages and investment so inflation can accelerate towards its 2% target.
But companies have been slow to implement their robust capital spending plans on uncertainty over the outlook.
The BOJ expects capital spending to increase in coming months as the economy emerges steadily from recession thanks to a much-awaited rebound in exports and factory output.
Still, a mixed set of economic data in recent months has kept alive market expectations the central bank will expand stimulus again later this year.
In a speech delivered in Europe on Tuesday, BOJ board member Sayuri Shirai warned of uncertainty over the outlook for capital expenditure.
Households’ and firms’ economic growth expectations may not rise unless the government’s growth strategies make progress,” according to a text of her speech released on Wednesday.
Japan’s economy grew much less than initially thought in the fourth quarter as capital expenditure declined, data showed on Monday, in a worrying sign that a rebound in consumer spending is not encouraging business investment.
