Japan June core machinery orders rise 8.3 percent month-on-month

By Stanley White

TOKYO (Reuters) – Japanese machinery orders rose more than expected in June in a sign that companies are gradually becoming more willing to increase capital expenditure.

Companies also expect core machinery orders, a leading indicator of capital expenditure, to rise in July-September, suggesting that business investment is starting to stabilize after a rocky performance in the previous quarter.

Prime Minister Shinzo Abe has compiled a stimulus package that focuses on infrastructure, which should support capital spending heading into next year, but risks remain that overseas economic turmoil could curb business investment.

“There have been some concerns about overseas economies and a strong yen hurting earnings, but capital expenditure seems to be holding up,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley.

“Companies are certainly not becoming more cautious, but we need to keep a close eye on the trend from here on.”

Core machinery orders rose 8.3 percent, well ahead of the median estimate for a 3.1 percent increase, Cabinet Office data showed on Wednesday.

Manufacturers’ orders rose 17.7 percent, while orders from the services sector rose 2.1 percent, the data showed.

Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 5.2 percent in July-September, which compares with a 9.2 percent decrease in April-June.

Abe’s cabinet last week approved an economic stimulus package with 13.5 trillion yen in fiscal measures as a precaution in case Britain’s exit from the European Union undermines global economic conditions.

Many policymakers and economists have said capital expenditure is crucial because it creates jobs and increases productivity, both of which Japan’s economy needs to be more vibrant.

Forecasts for gains in machinery orders in July-September suggests the economy could pick up from what is expected to be a subdued quarterly performance in April-June.

Data due on Monday is expected to show Japan’s economic growth slowed in the second quarter, weighed down by weak domestic demand and stagnant exports, according to a Reuters poll.

Gross domestic product (GDP) is forecast to expand at an annualized rate of 0.7 percent in April-June, the poll of 21 analysts showed, following 1.9 percent annualized growth in the first quarter.

This would be a quarterly expansion of 0.2 percent after a 0.5 percent rise in January-March.

(Editing by Richard Pullin and Eric Meijer)