Asia Economy

Japan Machinery Orders Surprisingly Strong, Recovery Eyed

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Japan's core machinery orders surged unexpectedly in December, up for a third straight month and firms expect more improvement in the first quarter, taking heart from recent yen weakness on the back of Japan's aggressive monetary easing stance.

Core machinery orders, a highly volatile data series seen as a leading indicator of capital spending in the coming six to nine months, gained 2.8 percent, against a median forecast for a 0.7 percent decline. It followed a 3.9 percent rise in November.

(Read More: Japan Factory Output Up, Firms Expect Recovery)

Companies surveyed by the Cabinet Office have forecast that core orders, which exclude those for ships and machinery at power utilities, will rise 0.8 percent in January-March from the previous quarter.

The orders rose 2.0 percent in October-December, the first increase in three quarters.

The positive data will support Prime Minister Shinzo Abe who has pledged bold economic and fiscal policy to revive the economy and beat deflation.

"Corporate capital spending is likely to have bottomed out and head towards a recovery from January-March," said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"Companies have been cautious about capital spending due to a strong yen but the yen's recent weakening and rising share prices are expected to boost corporate profits and thus encourage capital spending."

(Read More: Weak Yen Yet to Reach Corporate Japan's Bottom Line)

Compared with a year earlier, core orders, which exclude those for ships and electric power utilities, declined 3.4 percent in December, versus the median estimate for a 2.9 percent annual fall, Cabinet Office data showed.

The Cabinet Office raised its assessment of machinery orders, saying there was a moderate pick-up, compared with its previous view that orders were weakening as a trend.

Analyst expect the economy will grow moderately this year as exports will pick up helped by global economic rebound and Abe's ambitious economic policy.

In January, the government approved a 10.3 trillion yen ($110 billion) economic stimulus mainly for public works, the biggest spending boost since the financial crisis.

Under relentless pressure from Abe for more aggressive efforts to beat deflation, the Bank of Japan last month doubled its inflation target to 2 percent and made an open-ended commitment to buy assets from next year.