Soft bounce in Japan machinery orders leaves doubts on outlook

Tue Sep 9, 2014 11:55pm EDT
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By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's core machinery orders rose for a second straight month in July, but analysts said the data failed to dispel some doubts about the strength of business investment that is needed to propel Japan out of the slump caused by April's sales tax hike.

The 3.5 percent rise in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, was less than the median estimate of a 4.0 percent increase in a Reuters poll of economists.

That followed a 8.8 percent rise in June and a 19.5 percent drop in May, which was the biggest drop in data going back to 2005.

The data followed a recent run of weak economic indicators that suggest a rebound expected this quarter from April's slump may not prove as strong as originally thought.

Weak readings cloud the prospects of a planned increase in the sales tax in October 2015, while keeping policymakers under pressure to provide fresh stimulus to prop up the economy.

"Some companies are still cautious about demand. I expect the second sales tax hike to happen, but keep an eye out for more stimulus from the government," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

The core orders were boosted by one big order from a chemicals producer, a government official said, adding that excluding the one-off factor overall growth in July was moderate.

The Cabinet Office data showed orders from manufacturers for new machinery rose 20.3 percent in July - thanks to the big order from a chemicals producer - while those from non-manufacturers fell 4.3 percent.   Continued...

Heavy machinery is seen in a construction site in Tokyo March 13, 2014. REUTERS/Toru Hanai