TOKYO: Japan’s core machinery orders grew in March for the first time in two months but they are seen sliding in the current quarter, suggesting that weak capital spending could further sap momentum from an economy struggling to rebound from a recession.
The 2.9 per cent month-on-month rise in core orders, a highly volatile data series seen as an indicator of capital spending in the coming six to nine months, beat economists’ median estimate of a 1.8 per cent gain, Cabinet Office data showed on Monday.
That followed a revised 1.4 per cent drop in February. 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.
“Japanese firms are not in a situation where they can accelerate capital spending given slowdown in Chinese and US economies and sluggish private consumption due to tame wages,” said Kenta Ishizu, market economist at Mizuho Securities.
Companies surveyed by the Cabinet Office forecast that core orders, which exclude those of ships and electric power utilities, will fall 7.4 per cent in the current quarter.
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.
In January-March, core orders rose 6.3 per cent from the prior quarter, up for three quarters in a row and marking the biggest gain in seven quarters. Growth in orders from service-sector firms outpaced those from manufacturers.
SLOW CAPEX, BOJ PRESSURED Japanese firms – from Toyota Motor to Daikin Industries’ – remain cautious about boosting new spending on factories and equipment given an uncertain economic outlook.
The GDP report on Wednesday is expected to show capital spending grew 0.8 per cent on-quarter, after sliding for three straight quarters through December.The sluggish capital spending means Japan’s economy is likely to grow at a modest annual pace of around annual 1 per cent in the coming quarters, Mizhuo’s Ishizu said.
The weak economic momentum could keep the Bank of Japan under pressure to deploy additional monetary stimulus in order to achieve its ambitious 2 per cent price goal.Market players widely expect the central bank to maintain the current pace of monetary expansion at its next policy review on Friday – as it did last month – though many see further stimulus around October.
