Japan October machinery orders drop 6.4% on month

Relax, bad data won't rock Japan's boat: Pro
Relax, bad data won't rock Japan's boat: Pro   

Japan's core machinery orders, a leading indicator of capital spending, snapped a four-month rising streak in October.

Core machinery orders fell 6.4 percent on month, worse than expectations for a 2.4 percent decline in a Reuters poll and slower than September's 2.9 percent increase.

Read MoreJapan shocks as economy slips into recession

Year-on-year, machinery orders fell 4.9 percent in October, worse than expectations for a 0.3 percent decline.

Kiyoshi Ota | Bloomberg | Getty Images

"Ironically, I think in a policy-driven market, bad news is actually going to be good news," Joe Zidle, portfolio strategist, Richard Bernstein Advisors told CNBC.

"The thing people fear more is actually a good number because that would have removed some of the impetus to really drive stimulus hard going forward. So with the snap election coming up next week and with the postponement of the sales tax, I think it gives policy makers in the central bank and the Japanese government a launch pad to unleash as much as quantitative easing as they can muster."

Read MoreMoody's downgrades Japan as concerns grow

Japanese Prime Minister Shinzo Abe called for a snap election in November after data showed that Japan tipped into a recession as the economy continued to struggle with the impact of a consumption sales tax hike to 8 percent from 5 percent in April. Abe also delayed a second sales tax to 10 percent, initially scheduled for October 2015, by 18 months. The election is due this coming weekend.

"The decline in machinery orders in October follows four increases in a row and is therefore not necessarily a disaster. We think that business investment will start to rebound soon," Marcel Thieliant, Japan economist at Capital Economics, wrote in a note.

Despite the decline, Japan's Cabinet Office maintained its view that machinery orders are showing a moderate pick-up.

"Moving beyond the current quarter, the outlook for investment spending is somewhat mixed. Following the plunge in GDP since the sales tax hike, the output gap has widened again, and no longer points to rising capital expenditure," Thieliant wrote.

"However, the index for production capacity in the Shoko Chukin survey, which has provided more reliable indications about the pace of investment spending, has climbed to a fresh high lately, and almost matches the level immediately ahead of the sales tax hike," Thieliant added, referring to a monthly survey on business sentiment among small and medium-sized enterprises that rose to 47.7 in November from 47.4 in October - the survey's first increase in four months.

"All in all, we think that business investment will start to pick up in coming months," he said.

Japan's benchmark Nikkei 225 index opened 1.1 percent lower shortly after the data was released.