Japan's machinery orders rise 3.5% on month in July

Japan's core machinery orders, a leading indicator of capital spending, rose for the second straight month in July but fell short of expectations.

Core machinery orders rose 3.5 percent on month, below expectations for a 4.0 percent rise in a Reuters poll and down from an 8.8 percent rise in June, government data showed on Wednesday.

On a year-on-year basis machinery orders rose 1.1 percent, better than expectations for a 0.6 percent rise and up from a 3 percent decline in June.

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"[While] we had expected a 5 percent increase month-on-month today's result is not pessimistic," said Junko Nishioka, chief Japan economist, RBS Securities Japan. "Japanese manufacturers are retrieving a growth trend in the second half of this year."

Tomohiro Ohsumi | Bloomberg | Getty Images

The figures came after Japan revised its second quarter gross domestic product (GDP) reading lower on Monday. The revised figure showed the economy contracted an annualized 7.1 percent, worse than an initial reading of 6.8 percent, marking the biggest contraction since the first quarter of 2009 as a hike in the consumption tax dragged economic growth.

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"The weaker-than-expected result for second-quarter GDP reflects higher-than-expected demand before the tax hike but... the underlying trend of Japanese economy is still positive, even though the pace of growth is slower than expected," Nishioka added.

Japan raised its sales tax to 8 percent from 5 percent in April, in bid to reduce its debt-to-GDP ratio which currently stands above 240 percent. The move has been criticized to be counter-intuitive to Prime Minister Shinzo Abe's big push to revive the economy.

The last time Japan raised consumption tax in 1997, the economy fell into recession shortly after.

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Japan's benchmark Nikkei index opened 0.4 percent lower shortly after the data was released, while the Japanese yen was steady against the dollar at 106.14.