TOKYO: Japan’s core machinery orders, a leading indicator of capital spending, are expected to have dropped for the second straight month in February, suggesting the economic recovery remains tenuous after last year’s recession.
Analysts, however, believe the broad uptrend in machinery orders remains intact although another month or two of declines would probably be cause for concern.
“The economy is picking up although at a very slow pace from falls led by a sales tax hike,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Core machinery orders, a highly volatile data series, are forecast to have fallen 2.8 percent in February from the previous month, a Reuters’ poll of 22 economists showed, following a 1.7 percent decline in January.
In December, they rose 8.3 percent – the fastest pace in six months.
“Machinery orders have kept its relatively high level since late last year but they are likely to fall slightly because there is a pause in a recovery in factory output,” said an analyst at Japan Research Institute in the survey.
Compared with a year earlier, core machinery orders are forecast to have risen 3.7 percent in February, up for a third straight month, after a 1.9 percent gain in January.
Norinchukin Research Institute’s Minami said: “I think there is momentum being built for corporations to increase spending on the back of strong earnings and higher share prices.”
On the whole, however, a mixed bag of data over recent months indicate slack in the economy and would be a deterrent to capital spending – a key consideration for the Bank of Japan as it seeks to spur inflation toward its 2 percent goal.
Indeed, the BOJ’s latest “tankan” business sentiment survey showed big companies plan to cut capital spending despite reaping strong profits from a weaker yen.
The central bank maintained the pace of its massive stimulus program last week despite inflation grinding to a halt. But markets are closely watching the bank’s next meeting on April 30 when it issues new long-term forecasts that may see a cut in its rosy price projections.
The poll also showed Japan’s wholesale prices will probably rise an annual 0.4 percent in March after a 0.5 percent gain the previous month.
Compared with the previous month, the corporate good price index (CGPI), which measures the price companies charge each other for their goods and services, probably dipped 0.1 percent in March, the poll showed.
The Cabinet Office will announce the machinery orders data at 8:50 a.m. on April 13 (7.50 p.m. EST on April 12).
