By Tetsushi Kajimoto
TOKYO (Reuters) - Japanese orders for machinery surged to their highest level in a decade in November, in a sign businesses may finally be responding to policymakers' efforts to get companies to spend their massive cash piles to spur economic growth.
The key gauge of capital expenditure was issued just as Japan's top business lobby urged companies to raise wages by 3 percent in the upcoming annual salary negotiations with unions, supporting the government's efforts to accelerate inflation.
Prime Minister Shinzo Abe, keen to stoke a virtuous cycle of business investment, consumer spending and growth in the world's third largest economy, is piling pressure on companies to spend their record holdings of cash to beat deflation.
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The premier has resorted, after years of token business cooperation with his agenda, to carrot-and-stick tactics to spur investment and boost wages, offering tax breaks to those who comply.
"Capital spending has been bullish recently," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"It is entering an autonomous expansion phase," he said.
Cabinet Office data out on Wednesday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 5.7 percent in November from the previous month, driven by non-manufacturers.
Core orders, which exclude ships and orders from electric power utilities, handily beat a 1.4 percent drop seen in a Reuters poll of analysts, following 5.0 percent growth in October, posting the fastest rise in four months.
The value of core orders stood at 899 billion yen ($8.14 billion), the largest amount since June 2008.
Analysts expect capital spending to remain in a gradual uptrend, given hefty company profits, negative interest rates, the need for labor-saving technologies to counter labor shortages, and procurement for the 2020 Tokyo Olympics.
Orders from manufacturers fell 0.2 percent month-on-month in November, after a 7.4 percent increase in the previous month.
Non-manufacturers' orders jumped 9.8 percent, following a 1.1 percent gain in October, led by orders from transport and mail services and one-off big-ticket orders from wholesalers and retailers.
"The bigger picture is that firms are facing the most severe capacity shortages since the early 1990s," said Marcel Thieliant, senior Japan economist at Capital Economics, who expects non-residential investment to rise 2 percent this year.
Despite the big gain in core orders, the Cabinet Office kept its assessment unchanged that the orders were showing signs of picking up, with officials citing just a slight increase on the three-month moving average.
Compared with a year earlier, core orders grew 4.1 percent in November, versus a 0.7 pct decrease expected by economists.
Japan's economy is in its best shape in years, led by strong global demand lifting exports and corporate earnings, although inflation remains subdued because of sluggish wage growth and weak consumer spending.
Bank of Japan Governor Haruhiko Kuroda offered a positive view on the economy and inflation on Monday, raising speculation the central bank may exit its crisis-mode monetary stimulus earlier than expected.
However, Kuroda reiterated the central bank's resolve to maintain its massive stimulus until its 2 percent inflation was met. The BOJ is due to issue quarterly projections for the economy and prices at its policy-setting meeting next week.
($1 = 110.4900 yen)
(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)