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Japan's January Machinery Orders Beat Forecasts

Machinery orders at Japanese firms rose slightly more than expected in January from the previous month, data showed on Friday, signaling that capital spending may continue to underpin a steady economic recovery.

Core private-sector machinery orders, a key gauge of corporate capital spending in the coming six to nine months, rose 3.9% in January from December, beating economists' median forecast for a 0.5 percent rise. The rise was the biggest since a 6.7% jump in August and followed a 0.7% fall in December.

Still, financial markets showed a muted response to the numbers, which are unlikely to affect interest rates. The Bank of Japan's policy board, which holds a two-day meeting on March 19-20, raised its key policy rate to a decade-high 0.5% last month and has promised to go slow on future rate hikes.

"The data confirmed firmness in capital spending, which is in line with the Bank of Japan's view," said Yoshimasa Murayama, an economist at BNP Paribas. "But that doesn't mean the trend is so strong as to cause overheating in capital spending. So it won't change the view that the BOJ will go slow in raising interest rates in the future."

The data also indicated that orders are likely to beat manufacturers' forecast of 2.2% growth in the January-March quarter from the previous three months.

That forecast can now be met even if orders fall as much as 2.4% in both February and March, a Cabinet Office official said. In October-December, orders increased by 2.0%.

"The figures were surprisingly strong. The data showed machinery orders are clearly on a rising trend, recovering from a dip in the autumn," said Takahide Kiuchi, a senior economist at Nomura Securities. "One reason behind the strength in capital spending is that exports are holding up fairly well," he added.

Compared with a year earlier, core orders, which exclude those for ships and machinery at electric power firms, rose 2.6%, against a 0.8% decline forecast in a Reuters poll.

Firm Corporate Sector

The Cabinet Office maintained its assessment that growth in machinery orders is fluctuating narrowly, using the same expression for the fifth straight month.

Orders from manufacturers rose 4.8% in January from the previous month, while those from non-manufacturers were up 2.2 percent, the data showed.

Many analysts believe that firm capital expenditure will continue to underpin Japan's economy while growth in private consumption remains fragile.

A Reuters poll of 17 economists showed on Monday that Japan's economy probably grew more than initially estimated in the final quarter of last year, after a solid reading in the Ministry of Finance's quarterly corporate capital spending survey.

Forecasts for October-December growth centered on 1.3% in real, price-adjusted terms, up from an initial reading of 1.2%, which was the fastest pace of growth in nearly three years. Revised October-December gross domestic product figures are due out Monday morning Tokyo time.

A MOF quarterly survey showed earlier this week that companies boosted spending on plant and equipment by 16.8 percent in October-December compared with the same period a year earlier.

Japan is currently enjoying its longest period of economic expansion in the postwar era, albeit at a slower pace than previous booms, on the back of solid exports and robust corporate capital expenditures.

The BOJ raised its key policy rate to 0.5% from 0.25% last month, judging that the economy would stay on track for steady growth with prices seen in an uptrend.

Most analysts expect the BOJ to keep rates on hold for coming few months and possibly longer.

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