Japan’s October machinery orders rebound

11 December, 2020 12:00 AM printer

Tokyo: Japan’s core machinery orders rebounded sharply in October from the previous month’s drop, the government said on Wednesday, a welcome development for an economy emerging from a deep coronavirus slump.

The jump in core orders suggests a modest revival in corporate spending, seen by policymakers as necessary to accelerate the recovery in the world’s third-largest economy, report agencies.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, soared 17.1 per cent in October, recouping the previous month’s 4.4 per cent drop.

The increase, the largest month-on-month rise since comparable data became available in 2005, was much better than a 2.8 per cent expansion forecast by economists in a Reuters poll.

“The global economy is in quite a weak state aside from China, so it’s hard to imagine sharp increases in spending aimed at supporting exports,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“Domestic production remains in a relatively healthy trend because of a decrease in inventories in April and May.” By sector, orders from manufacturers rose 11.4 per cent, boosted by non-ferrous metals, including a large order of seven billion yen (S$90 million) while those from non-manufacturers advanced 13.4 per cent , led by finance and insurance, the Cabinet Office data showed on Wednesday.

The government raised its assessment on machinery orders, saying they had stopped falling. Japan’s Cabinet on Tuesday approved a fresh US$708 billion economic stimulus package to boost the economy.

The package includes about US$385 billion in direct fiscal spending, while also targeting investment in new growth areas such as green initiatives and digital innovation.

Japan’s economy has been recovering from the shock of the coronavirus mainly thanks to a rebound in exports and consumption in the third quarter. But some policymakers, including the central bank, are worried about a slowdown in capital spending, which threatens to hurt domestic demand.

A government official cautioned that the month-on-month core machinery orders data was subject to an adjustment based on seasonal factors, potentially leading to a downward revision.

Compared to the same month a year earlier, core machinery orders, which exclude those for ships and electricity, rose 2.8 per cent in October, beating an 11.3 per cent decline expected by economists.