TOKYO, Oct 4: Japan’s core machinery orders likely rose 2.0 percent in August to mark their first increase in three months, a Reuters poll showed, an encouraging sign for capital spending that is seen as vital to driving sustainable long-term growth in the world’s third-largest economy.
The Bank of Japan is also taking a positive view. The central bank, which offered an intense burst of monetary stimulus in April to achieve 2 percent inflation in two years, revised up its assessment of capital expenditure on Friday to say it is picking up.
The outlook, however, is not without risks. Some analysts say the rising cost of living, caused by higher energy prices and a weak yen that inflates import prices, may hurt household and corporate spending appetite in coming months.
The corporate goods price index, a key measurement of wholesale prices, is expected to have risen 2.3 percent in September from a year earlier, to mark the sixth consecutive month of increase, according to the Reuters poll.
The price gains, if sustained, will add to the pain households will feel from Prime Minister Shinzo Abe’s decision on Tuesday to increase the sales tax rate to 8 percent from 5 percent in April next year.
For now, however, many analysts expect improvements in business sentiment to encourage companies to spend more on plant and equipment, as well as on bonus payments to employees.
‘The yen’s weakening since late last year will support exports ahead, while increasing domestic and external demand will spur corporate capital spending. We expect the uptrend in machinery orders to be sustained,’ Nomura Securities said in a research note.
The forecasts for core machinery orders, a highly volatile series regarded as a leading indicator of capital spending, ranged from a 5.9 percent increase to a 3.1 percent decline.
The machinery orders data is due out next Thursday and the corporate goods price data on Friday.
Japan’s economy expanded for three straight quarters in April-June, outpacing other G7 nations with an annualised growth of 3.8 percent, as Abe’s reflationary policies bolstered household spending and drove down the yen, benefiting exports.
Big manufacturers’ sentiment improved to its highest in nearly six years, the BOJ’s ‘tankan’ survey for the September quarter showed, underscoring its view the economy is on track for a moderate recovery.
Policymakers hope the positive mood will nudge companies into boosting capital spending and wages, a key factor in achieving a sustained economic recovery and pulling Japan out of deflation. Companies have been hoarding cash instead of spending for decades on the view Japan will remain mired in deflation.
(AGENCIES)
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