Japan machinery orders surge

November 11, 2009
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, TOKYO, Nov 11 – Japan\’s machinery orders increased at a much faster pace than expected in September, official data showed Wednesday, raising optimism about prospects for a recovery in the world\’s number two economy.

The orders, seen as a key barometer of business investment, jumped 10.5 percent in September from the previous month, following a 0.5 percent rise in August and a 9.3 percent drop in July, the government said.

Markets had expected a much smaller increase of about three percent in the core orders, which exclude particularly volatile demand from power companies and for ships.

Orders were down 22.0 percent from a year earlier, reflecting steep cuts by Japanese companies in spending on plants and equipment in an effort to weather the worst economic slump in decades.

The Cabinet Office upgraded its assessment of demand, saying that earlier falls appeared to be coming to an end.

Orders are expected to be steady, or rise slowly, for the rest of the current financial year to March 2010, said Hiroshi Watanabe, an economist at the Daiwa Research Institute.

One risk is that a recovery in major overseas economies may stall, he said.

"If that happens, it could potentially weaken Japanese exports," Watanabe warned.

The data mirrors other signs of an improvement in Japan\’s economy, including seven straight monthly rises in factory output and a recent decline in the unemployment rate.

Japan sank into recession in the second quarter of 2008 as the global economic downturn battered demand for its cars, electronics and other exports.

Asia\’s biggest economy grew in April-June for the first time in five quarters, but weak domestic demand, renewed deflation and the negative impact of a strong yen on exports are casting a cloud over recovery prospects.

In the October-December period, orders are expected to rise 1.0 percent from the previous quarter, based on the machinery manufacturers\’ own forecasts, after a decline of 0.9 percent in July-September, the government said.

"Although the better-than-expected gain in September was largely boosted by special orders … we think the underlying trend of core orders has finally bottomed out," said RBS economist Junko Nishioka.

"Capital expenditure may return to positive growth in the third quarter of 2009, but we think it is too early to expect significant growth momentum," said Nishioka.

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