Asia Economy

Japan machinery orders rise 2.9% in September

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Japan's core machinery orders, a leading indicator of capital spending, rose for the fourth straight month in September.

Core machinery orders rose 2.9 percent on month, above expectations for a 1.9 percent decline in a Reuters poll but slower than August's 4.7 percent increase.

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Year-on-year, machinery orders rose 7.3 percent in September, above expectations for a 1.3 percent decline.

The above-view data failed to boost Japanese equities, however; Japan's benchmark Nikkei 225 opened 0.1 percent lower shortly after the data.

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"Right now we are not paying a lot of attention to [machinery orders]," said Joe Zidle, Portfolio Strategist, Richard Bernstein Advisors, noting that Japan is currently a policy-driven market.

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"I think what's going to be far more important for investors is whether the Bank of Japan continues to respond to the slew of data," he said. "The bigger picture has been a slower economy, a big hit from the sales tax hike in April. I think Japan markets are seeing something similar to what the U.S. saw over the last 3-4 years, like the Federal Reserve and Quantitative Easing. That's what markets are playing out now in Japan."

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.

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In the second quarter, Japan's economy contracted a revised 7.1 percent on an annualized basis, marking the biggest contraction since the first quarter of 2009 the consumption tax hike dragged growth.

Machinery orders rose 5.6 percent on quarter for the July-September period, the second straight quarterly increase. Companies surveyed by the Cabinet Office forecast that orders will fall 0.3 percent in the October-December quarter.

Despite companies' expectations for a decline in the current quarter, Harumi Taguchi, Principal Economist at IHS Global Insight expects orders to continue increasing "at a moderate pace".

"The ongoing improvement suggests companies, manufacturing industries in particular, still plan to increase investment in machinery and equipment despite sluggish demand from both domestic and external markets," she said.

"[However], large order backlogs could weaken the uptrend of private machinery orders in the near term.