Machinery Orders Jump In Japan

Seventeen percent surge, the fastest growth in nearly four years, raises hopes that Japanese business investment will continue growing despite a possible U.S. economic downturn.

TOKYO (AP) — Japanese core machinery orders rose at their fastest pace in nearly four years in July, surging 17 percent, underpinned by robust demand for electrical machinery, government data showed Tuesday.
 
The result marked the first rise in two months, and was better than the 5.9 percent on-month rise expected by economists surveyed by Dow Jones and Nikkei.
 
Robust orders may raise hopes that Japanese business investment will continue growing despite a possible U.S. economic downturn triggered by the subprime mortgage crisis.
 
The machinery data come a day after the government revised its numbers for the nation's gross domestic product, saying the economy shrank 1.2 percent on an annual basis in the April-June period, the first contraction in three quarters and a reversal from its preliminary estimate of 0.5 percent growth.
 
The economic contraction was due largely to a fall in corporate capital expenditures.
 
The strong machinery orders in the latest report underline companies' sustained appetite for capital investment, analysts said, allaying concerns that sluggish capital spending may weigh on the world's second largest economy.
 
''The drive for capital expenditure is firm,'' said Yuji Kameoka, senior economist for Daiwa Research.
 
Japan's economy minister expressed similar sentiments.
 
''There are a few weak indicators, but the recovery trend continues,'' Hiroko Ota, the minister, told reporters. Machinery orders are in ''good shape,'' he said.
 
The Cabinet Office, though, struck a cautious note, keeping its assessment of core machinery orders unchanged for the third straight month, saying they are ''moving sideways.'' July's figure might have been due to large-size orders such as for railroad construction, officials said.
 
The Cabinet Office also attributed the biggest rise in core machinery orders since October 2003 mainly to a rebound from a 10.4 percent plunge in June from May. Growth in orders for electrical machinery in July, up 34.4 percent from June, also helped push the overall result higher, it said.
 
Economists say the Bank of Japan will find it harder to raise interest rates, given the recent global market turmoil following the surfacing of U.S. credit woes.
 
Koichi Haji, chief economist at NLI Research Institute, says the central bank will have to wait until next year for a hike.
 
''It's highly likely that a near-term BOJ rate hike would exert a harmful influence on financial markets,'' he said. ''It's unclear when financial markets will regain stability.''
 
Machinery orders are widely regarded as a leading indicator of corporate capital investment, which accounts for about 15 percent of Japan's gross domestic product.
 
Core orders exclude orders from electric power companies or for ships, which are often a source of volatility in the overall data.
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