Record Japan machinery orders suggest economy may jump tax hurdle

Mon May 19, 2014 3:28am EDT
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By Tetsushi Kajimoto and Stanley White

TOKYO (Reuters) - Japanese businesses raised orders for machinery by the most ever in March and expect to book more orders this quarter, another sign that capital investment may buffer the economy from the pain of last month's sales tax hike.

Haunted by a stumble in the economy that followed when Tokyo last lifted the tax in 1997, markets have worried that the April 1 tax rise could deal a heavy blow to policy makers' attempts to revitalize growth after decades in the doldrums.

Monday's data and recent anecdotal evidence, however, suggested economic resilience and backed the central bank's conviction that near term stimulus is not needed to pull through short term dips in growth.

Vice Economy Minister Yasutoshi Nishimura echoed the Bank of Japan's view the economy is on track, adding that the government and the bank stood ready to respond to any downturn stemming from risks such as weak external demand.

"There's no gap between us and the BOJ in our views on the Japanese economy. We need to carefully watch the pullback in demand after the sales tax hike, but it has been moving within expectations," he told the Reuters Japan Summit, held at the Reuters office in Tokyo.

The record 19.1 percent month-on-month rise in core machinery orders, a leading indicator of capital spending in the coming six to nine months, blew past a 6.0 percent gain forecast by economists in a Reuters poll.

The readings follow last week's first quarter gross domestic product figures that showed surprisingly strong capital spending -- a crucial factor which helped the economy grow at its quickest pace in over two years.

Companies surveyed by the Cabinet Office forecast that core orders will rise 0.4 percent in April-June from the previous quarter, which would mark the fifth straight quarter of gains. In January-March, core orders rose 4.2 percent, the data showed.   Continued...

A shopper looks at earphones displayed at a mobile phone store at Tokyo's Ginza shopping district May 15, 2014. REUTERS/Yuya Shino