Japan's machinery orders jump

Japan's core machinery orders rose unexpectedly in March and manufacturers forecast more gains in the second quarter on the back of demand generated by reconstruction from the March 11 earthquake. Analysts had braded for a fall after a slump in industrial output in March and some warned capital spending could dip again, given manufacturers' problems with getting production back to pre-quake levels.
Japanese companies are also grappling with rising commodity costs and poor consumer sentiment. Wholesale prices rose in April at their fastest annual rate in 2-1/2 years while consumer confidence suffered a record fall, official data showed on Monday. Economists pointed out that companies' optimistic forecasts were largely linked to government efforts to rebuild the quake-hit areas and the uncertainty over when it will release the next batch of funds for reconstruction clouded the outlook.
"If demand related to quake reconstruction picks up, companies may feel more willing to boost investment," said Takeshi Minami, chief economist at Norinchukin Research Institute. "But much depends on when the government can compile its second extra budget to fund spending, which is highly uncertain." On Monday, Prime Minister Naoto Kan signalled the next extra budget may have to wait until August or later, saying it would be based on plans prepared by regional authorities in the quake-hit areas.
Core domestic private sector machinery orders rose 2.9 percent in March from the previous month against the median estimate for a 9.6 percent fall and following a revised 1.9 percent decline in February. The rise was led by brisk demand for electronics such as semiconductor production equipment. Foreign orders, which are excluded from the core measure, jumped 21.5 percent in January-March, compared with a 3.5 percent rise in core orders during the same quarter. Manufacturers surveyed by the Cabinet Office have forecast that core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, will grow 10 percent in April-June from the previous quarter.