Japan Machinery Orders Fall Less Than Expected

Japan's core machinery orders fell less than expected in November while wholesale inflation was higher, but the data did little to alter views the Bank of Japan will hold back on raising interest rates this year.

Core orders received at Japanese manufacturers, a key gauge of corporate capital spending, fell 2.8 percent in November from the previous month, government data showed on Wednesday. That was a smaller decline than a consensus forecast of a 4.7 percent drop.

Corporate investment in machinery and the like is a key driver of growth in Japan, and economists are watching closely to see if a slowing U.S. economy will prompt companies, especially exporters, to cut spending.

"The fall was largely a reaction to the sharp rise in October so it's not necessarily a bad reading," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute. "But the outlook for corporate activity remains uncertain due to growing concern over the course of the U.S. economy," he said. "Exports are firm so far but are expected to slow ahead and corporate revenues are weakening, so the risk is clearly to the downside."

Other government data showed the current account surplus rose a modest 2.1 percent in November from a year earlier, lagging a market median forecast of 6.5 percent rise.

Financial markets did not react much to the data, but growing fears of a U.S. recession pushed the Nikkei average down 2 percent, while the dollar hit a 2-1/2-year low against the yen as investors cut back riskier carry traders.

BOJ Balancing Act

Wholesale prices, as measured by the corporate goods price index, rose 2.6 percent in December from a year earlier, Bank of Japan data showed.

That was above economists' median forecast of a 2.3 percent rise, suggesting that rising crude oil and raw material prices were boosting costs for companies.

Annual wholesale inflation has been around 2 percent in recent months. Depressed consumer spending has held back headline inflation as companies struggle to pass on rising costs, although there have been signs consumer prices are stirring.

The data came ahead of a central bank rate review on Jan. 21-22, when it is widely expected to keep its key policy rate target unchanged at 0.5 percent as it balances domestic price pressures with a depressed global outlook.

The Bank of Japan has vowed to raise Japan's very low rates gradually to keep the economy from overheating but it has not moved since February last year and market turbulence means analysts see no prospect of a rise this year.

Compared with a year earlier, core private-sector orders, which exclude those for ships and machinery at electric power firms, rose 0.9 percent in November, against economists' consensus forecast for a 1.2 percent fall.

Economists say the trend for core machinery orders has been firm but Japan's capital spending and export-led growth could slow this year due to a Japanese housing construction slump and a slowdown in the U.S. economy.

Some economists say it may be hard for core orders to meet a 3.1 percent rise forecast for the fourth quarter of last year by manufacturers.