Japan's machinery orders extend gains as business spending stabilises

TOKYO: Japan’s core machinery orders unexpectedly rose in August, extending gains and highlighting resilience in capital spending even as the economy remains under pressure from the coronavirus pandemic.

The modest increase in core orders was a welcome sign of strength for the economy however, companies are still struggling from the hit to their corporate earnings.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 0.2% in August after a 6.3% rise in July.

The rise, which was due to strong orders for general production machinery as well as petroleum and coal products, was better than a 1.0% contraction seen by economists in a Reuters poll.

Also brightening the outlook, the government raised its assessment on orders to say they had stopped falling.

However, analysts warn orders may turn negative again in the coming months as firms struggle with excess output capacity.

“There are many industries whose business performance has gotten much worse and the outlook hasn’t improved yet,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“There isn’t any reason for firms to take on new spending. It will probably decline until the fist half of next year.”

By sector, orders from manufacturers shed 0.6%, while those from non-manufacturers lost 6.9%, the Cabinet Office data showed on Monday.

Orders for cars and car parts rose for the third straight month in August, while those for chemicals and chemical products provided a big drag.

Overseas orders, which are not included in core orders, rose their fastest since April 2014, jumping 49.6% from the previous month after posting a 13.8% gain in July.

Separate data on Monday showed lending by regional banks stayed high in September as smaller firms scrambled to meet their immediate funding needs.

The world’s third-largest economy is gradually rebounding from the shock of the coronavirus pandemic, with the government last Wednesday saying economic activity likely stopped contracting in August.

That offered some relief for new Prime Minister Yoshihide Suga, who has pledged to revive Japan’s battered economy.

The government has already deployed a combined $2.2 trillion of fiscal stimulus.

The central bank will hold two more policy reviews this year, with the first one set for Oct. 28-29 and the other one coming up in mid-December.

From a year earlier, core machinery orders, which exclude those for ships and electricity shed 15.2% in August, in line with an expected 15.6% decline.