Japan's core machinery orders rose for the first time in three months in October, but uncertainty over the global outlook will likely continue to weigh on business investment and dull the economy's recovery from recession.
Core machinery orders, a highly volatile data series seen as a leading indicator of capital spending in the coming six to nine months, rose 2.6 percent in October from September, when they had fallen 4.3 percent, Cabinet Office data showed.
Despite the October rise, which was below a forecast rise of 3.0 percent in a Reuters poll, the government cut its assessment to say the trend for machinery orders was weakening.
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"Japan's economy can emerge from recession in the first quarter as consumer spending and exports are expected to pick up," said Yasuo Yamamoto, senior economist at Mizuho Research Institute. "But in order for growth to accelerate even further, capital expenditure needs to improve. Unfortunately, capital expenditure is likely to remain weak."
Policymakers are concerned that a weak manufacturing sector will hurt the broader economy as companies cut wages and delay investment, keeping the pressure on for stimulus steps.
The Bank of Japan will likely ease monetary policy next week, sources say, probably by expanding its asset-buying and lending program by another 5-10 trillion yen from the current 91 trillion yen.
Compared with a year earlier, core orders, which exclude those for ships and power utilities, rose 1.2 percent in October.
Japan's economy outperformed most of its Group of Seven peers at the start of the year on robust spending by consumers and reconstruction after last year's earthquake and tsunami.
But the economy contracted for a second straight quarter in July-September, meeting a common definition of economic recession, and analysts expect another contraction in the final three months of this year.
Japan's main opposition Liberal Democratic Party (LDP) and its smaller ally look set to win a solid majority in elections this weekend, returning to power for the first time since 2009 with calls for radical monetary easing and tougher stance on China over some disputed islands in the East China Sea.