Machinery orders in Japan post surprise gains in July

A factory area is seen in front of Mount Fuji in Yokohama, Japan January 16, 2017. REUTERS/Kim Kyung-Hoon/File Photo

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  • July underlying orders +5.3% m/m, above f’cast
  • Core orders +12.8% y/y vs f’cast +6.6%

TOKYO, Sept 14 (Reuters) – Japan’s core machinery orders extended gains in July, raising hopes that growth spending by businesses could offset near-term headwinds from a global economic slowdown and a weaker yen, which drove up costs in the country.

The surprise rise in base orders – a barometer of capital spending – could provide temporary relief to policymakers hoping business investment will spur a national recovery in the world’s third-largest economy.

The Reuters Tankan survey, however, separately showed that Japanese manufacturers’ business confidence fell from a seven-month high in September as the business sector faced continued pressure from high commodity costs. Read more

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Core orders, a highly volatile data series seen as a guide to capital spending over the next six to nine months, rose 5.3% in July from the previous month, Cabinet Office data shows. .

The advance, which was boosted by a number of mid-size orders for railway carriages, was stronger than a 0.8% contraction predicted by economists in a Reuters poll and followed a increase of 0.9% the previous month.

The result “indicates strong growth in non-residential investment this quarter, accompanied by solid growth in capital outflows in July and record corporate profit margins in the second quarter,” said Darren Tay, Japan economist at Capital Economics.

By sector, manufacturers’ orders fell 5.4% month on month, weighed down by lower orders in the electrical machinery and automotive and parts subsectors.

Non-manufacturing orders jumped 15.1%, boosted by a 172.7% rise in orders from the transportation and postal subsector that offset a drop in the wholesale and retail trade subsector and drove up overall orders.

LOW YEN

As Japan Inc faces higher import costs due to a weaker yen, which has lost around 20% against the dollar this year, the weaker currency may also make home-based goods production more attractive to export-oriented manufacturers.

However, the fall in the yen this year is unlikely to immediately lead to increased spending on factories and other manufacturing facilities, said Takumi Tsunoda, senior economist at the Shinkin Central Bank Research Institute.

“It takes about two years for exchange rate fluctuations to start affecting companies’ capital spending plans,” Tsunoda said.

“Companies are at the stage of assessing whether the depreciation of the yen will be sustained. This will not lead to an immediate increase in domestic capital investment.”

Compared with a year earlier, base orders, which exclude volatile shipping and electric utility numbers, rose 12.8% in July, the data showed.

In the Reuters Tankan survey, the manufacturing confidence index fell to 10 in September from 13 last month as the yen’s recent fall to a 24-year low amplified the pain of rising import costs for national companies.

Japan’s economy grew more than initially expected in April-June on stronger business and consumer spending following the lifting of local COVID-19 restrictions. Read more

But it faces growing risks of economic slowdown in the United States, Europe and its main trading partner China, while sharp price increases and a weak yen hit consumer spending and weigh on business sentiment. business in the country.

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Reporting by Daniel Leussink; Editing by Sam Holmes and Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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