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Japan machinery orders seen as bullish after May's smaller than expected fall

Reuters  |  TOKYO 

By Kajimoto

(Reuters) - Japan's core fell in May, pulling back from the previous month's big gain, although the decline was softer than expected, easing some concerns about a slowdown in capital expenditure amid a worsening U.S.-trade conflict.

Capital expenditure is a bright spot in Japan's economy, which suffered a first-quarter contraction after its longest growth run since the bubble economy of the 1980s.Economists are watching capital spending closely for clues on the strength of an expected economic rebound in the second quarter.

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, fell 3.7 percent, smaller than economists' median estimate of a 5.5 percent drop.

It followed a 10.1 percent rise in April.

The data came a week after the of Japan's key tankan survey showed big firms planned to raise capital spending by a solid 13.6 percent this fiscal year, even as manufacturers' business confidence soured for two straight quarters in June.

"The orders data as well as the tankan confirmed bullish capital expenditure," said Koya Miyamae, at "Core orders look set to grow for a fourth straight quarter in April-June." Economists expect capital expenditure to be underpinned by the need to upgrade production capacity, boost software, invest in to cope with labour shortages and to meet infrastructure needs ahead of the 2020

Still, policymakers and analysts are carefully watching how trade disputes between the and - Japan's two major export destinations - may affect corporate capital spending plans in an export-reliant economy.

U.S. tariffs on $34 billion in Chinese imports took effect on Friday. responded with its own measures.

The raised the stakes in its trade war with on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.

By sector, orders from manufacturers rose 1.3 percent in May, while service-sector orders increased 0.2 percent.

The kept its assessment of unchanged to say they are picking up.

Compared with a year earlier, core orders, which exclude those for ships and from electricity utilities, rose 16.5 percent in May, versus an 8.6 percent gain seen by economists.

The of Japan's June tankan showed planned to increase capital expenditure by 17.9 percent this fiscal year, the fastest gain since 2015.

Large non-manufacturers plan to raise capex by 11.2 percent, which would be the fastest increase since 1990 at the peak of the bubble economy.

The central will scrutinise the orders and other data at its rate review ending July 31, at which its nine-member board will conduct a quarterly review of its long-term growth and inflation outlook.

(Reporting by Kajimoto; Editing by Eric Meijer)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, July 11 2018. 06:56 IST