Japan's Machinery Orders Jump More Than Expected

Japanese core machinery orders rose more than expected in October, suggesting Japanese corporate activity remained resilient in the face of concerns over turmoil in global financial markets.

Still, the latest data in the highly volatile series did little to alter expectations that the Bank of Japan will not raise interest rates until late next year so as not to upset fragile, export-dependent growth.

Core private-sector machinery orders, regarded as an indicator of capital expenditure in the coming six to nine months, rose 12.7 percent in October from September, government data showed on Monday, although slowing construction could curb future spending.

The rise was almost twice as high as economists' median forecast for a 7.0 percent increase and followed a 7.6 percent drop in September.

"It was a strong figure, with rises spreading through many sectors," said Yasuhiro Onakado, chief economist at Daiwa SB Investments. "It eases worries about downward pressure on future capital spending despite lingering uncertainty over the economic outlook."

Compared with a year earlier, core orders, which exclude those for ships and machinery at electric power firms, rose 3.3 percent, the first rise in three months.

Monday's reading suggested firm corporate spending on machinery is likely to underpin the economy, easing worries about fallout from the global credit crisis and a likely U.S. slowdown.

But uncertainties are far from dispelled, economists said.

"The data suggests spending on machines will continue to grow," said Hiroshi Shiraishi, an economist at Lehman Brothers. "But given that spending on construction is plunging on tighter regulations, in total, capital spending will probably be almost flat in October-December and January-March."

The data came after Japan revised down third-quarter growth last week, surprising markets that had expected an upward revision.

Soft capital spending saw gross domestic product rise just 0.4 percent in July-September, compared with an initial estimate of 0.6 percent growth and lagging the consensus forecast for an upward revision to 0.7 percent growth.

Global financial market jitters are also making it difficult for the BOJ to justify a rate hike. The central bank wants to raise low rates back to more normal levels to avoid economic overheating.

The BOJ has kept rates unchanged since raising its key policy rate to 0.5 percent in February. It will next review rates on Dec. 19-20.

Separate data released by the BOJ showed that Japanese bank lending grew 0.6 percent.