By Tetsushi Kajimoto
TOKYO, Oct 10 (Reuters) - Japan took another step forward to
cementing a durable economic recovery, as core machinery orders
rose in August to their highest level since the global financial
crisis, a welcome sign for achieving sustainable growth.
The 5.4 percent month-on-month rise in core orders, which
exclude those for ships and electric power utilities, was the
first rise in three months, data from the Cabinet Office showed
The reading also beat economists' median forecast for a 2.0
percent gain, and followed a slight fall in July.
The value of core orders reached 819 billion yen ($8.4
billion), the biggest since the Sept. 2008 collapse of U.S.
investment bank Lehman Brothers triggered the global recession.
The outcome is an encouraging sign for Prime Minister
Shinzo Abe, who is hoping the positive mood generated by his
reflationary policies, dubbed 'Abenomics', will lead to a
virtuous cycle of higher capital spending, growth in wages and
The government and the Bank of Japan see a recovery in
capital spending as key in driving a sustained economic recovery
and breaking 15 years of grinding deflation, paving the way for
the ultimate success of Abe's policies.
Growth so far this year suggests that the recovery in the
world's third-largest economy is solidifying, although the jury
is still out on whether capital spending is about to take a
decisive turn for the better.
Second quarter gross domestic product data last month showed
capital spending rose 1.3 percent, marking the first increase in
'The (machinery) data confirmed a recovery in capital
spending led by non-manufacturers, reflecting effects from
Abenomics,' said Takeshi Minami, chief economist at Norinchukin
Research Institute in Tokyo.
Japan's economy expanded for the third straight quarter in
April-June, outpacing other G7 nations with an annualised growth
of 3.8 percent, as the government's aggressive policies
bolstered household spending and drove down the yen, benefiting
Analysts expect companies to spend more on plant and
equipment in coming months as the BOJ's key tankan survey
earlier this month showed confidence among big manufacturers hit
its highest in nearly six years in the third quarter.
In another positive signal for the economy, Japanese
consumer confidence rose for the first time in four months in
September, a government survey showed on Thursday, reflecting
improved views on incomes and jobs.
For years Japanese firms have been hoarding cash, instead of
spending on plants and equipment or raising salaries, due in
part to the view Japan would remain mired in deflation, bringing
their total cash pile to some 220 trillion yen ($2.26 trillion).
Despite signs of a recovery in capital spending, many firms
remain reluctant to raise wages in defiance of Abe's call to
boost salaries, casting doubts about the sustainability of the
Data showed this month wage earners' total cash earnings
fell year-on-year for the second consecutive month in August,
with regular pay down for 15 months in a row, a sign a sustained
rise in wages is far from assured despite a rise in bonuses.
Underlining tame cash demand among companies, Japanese bank
lending grew just 2.0 percent in the year to September, separate
data from the Bank of Japan showed on Thursday.
The Cabinet Office raised its view on machinery orders,
saying they are picking up, from its previous view it was
The BOJ, which offered an intense burst of monetary stimulus
in April to achieve 2 percent inflation in two years, also
revised up its assessment of capital expenditure on Friday to
say it is picking up.
The Cabinet Office data showed orders from manufacturers
rose 0.8 percent, while orders from the services sector
increased 6.2 percent, underscoring firm domestic private
Compared with a year earlier, core orders, a highly volatile
data series regarded as an indicator of capital spending in the
coming six to nine months, grew 10.3 percent in August, above
economists' median estimate of a 8.7 percent gain.
Still, underscoring the challenges facing policymakers, some
analysts remain doubtful that the positive momentum can be
sustained, given companies' reluctance to raise wages.
'This data is certainly positive for Abenomics but it just
points to the beginning of the positive cycle and I doubt it can
be sustained, given sluggish wages,' said Naoki Iizuka,
economist at Citigroup Global Markets Japan.
($1 = 97.1950 Japanese yen)
($1 = 97.1950 Japanese yen)
(Editing by Shri Navaratnam)
Keywords: JAPAN ECONOMY/MACHINERY
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