Surprise jump in Japan machinery orders eases capex concerns

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's core machinery orders unexpectedly jumped in October by the most since March 2014, government data showed on Wednesday, a strong resumption of investment and helping ease concerns about weakness in capital spending.

Cabinet Office data showed core orders, a highly volatile data series regarded as a useful leading indicator of capital spending in the coming six to nine months, rose 10.7 percent in October from the previous month, in bold contrast to the 1.5 percent drop forecast by analysts.

Wednesday's gain followed 7.5 percent growth in September, which had been the first month-on-month increase in four months.

The data should offer some hope to Prime Minister Shinzo Abe, who is piling pressure on companies to boost investment to spur growth, as his "Abenomics" recipe of monetary and fiscal stimulus and reform struggles for traction.

But uncertainty over the outlook may prevent capital spending from accelerating. October's big gains were caused in part by one-off orders, including railway cars.

"The data suggests effects from a global economic slowdown are gradually easing," said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.

"We expect machinery orders to stay largely flat ahead. Exports and output remain sluggish, reflecting the global slowdown, so we must bear in mind the possibility that export-related firms may grow cautious about capital expenditure."

The Cabinet Office raised its assessment of machinery orders, saying they are showing a pick-up.

A Cabinet Office official noted, however, that October's big gains may not be sustained because the number of industries that saw orders rising was not broadening out.

By sector, manufactures' orders rose 14.5 percent in October, up for the first time in five months, led by boilers, turbines and engines. Non-manufacturers' orders grew 10.7 percent, up for two months in a row, helped by the railway cars.

Orders from outside Japan, which are not counted as core orders, jumped 41.6 percent, thanks to some big-ticket items.

The reading came on the heels of data out on Tuesday that showed Japan's economy dodged recession in the third quarter when the initial estimate of a contraction was revised to an expansion due to an upward revision of capital spending and inventory building.

Japan's biggest business lobby has said capital expenditure could surge over the next three years, prompting the government to hint at cutting corporate tax to below 30 percent next fiscal year.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)