Japan’s core machinery orders rebound, signal capex recovery intact

Vastavam web: Japan’s core machinery orders in April jumped the most since the start of 2016, reversing the prior month’s decline and raising some hopes for durable growth in capital expenditure seen as crucial for a recovery in the economy after a contraction in the first quarter. Core orders, a highly volatile data series regarded as an indicator of capital expenditure in the coming six to nine months, rose 10.1 percent and handily beat a 2.8 percent gain forecast in a poll of economists. They fell 3.9 percent in March.

The spectre of global trade war as U.S. President Donald Trump pursues an “America First” policy has clouded the outlook for export-reliant Japan. Weakness in consumer spending is also weighing on the world’s third largest economy. Policymakers are counting on capital expenditure to drive a virtuous growth cycle of higher wages boosting consumer spending, corporate profits and inflation. Economists expect capital expenditure to remain in a gradual uptrend backed by investment in robotics and labour-saving technologies to cope with a labour shortage as well as the need to upgrade aging plants and equipment.

The Cabinet Office said machinery orders are picking up, a slight upgrade from its previous assessment that they were showing signs of pick-up. The value of core orders stood at 943.1 billion yen ($8.62 billion), the biggest since June 2008, the data showed. External demand for machinery, which is not counted as core orders, rose 10.0 percent in April, up for the first time in three months. Compared with a year earlier, core orders, which exclude those for ships and from electric power utilities, grew 9.6 percent in April, versus a 3.9 percent increase expected.