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Japan August core machinery orders rise in signs of pick-up in capex

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Japan August core machinery orders rise in signs of pick-up in capex

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By Tetsushi Kajimoto TOKYO (Reuters) – Japan’s core machinery orders rose for a second straight month in August, handily beating market expectations, signalling a pickup in capital expenditure that should encourage Prime Minister Shinzo Abe ahead of a general election this month. The premier hopes to convince voters in the Oct.22 elections that his “Abenomics” recipe of aggressive monetary stimulus, fiscal spending and reform plans has improved the economy enough to stoke a sustainable recovery. Cabinet Office data showed on Wednesday that core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 3.4 percent on-month in August. That beat the median estimate of a 1.1 percent increase seen in a Reuters poll of economists, following an 8.0 percent gain in July. Compared with a year earlier, the core orders, which exclude orders of ships and utilities’ electrical power equipment, grew 4.4 percent in August versus the expected 0.8 percent rise. Orders from manufacturers jumped 16.1 percent month-on-month in August, driven by general-purpose production machinery such as machine tools, while service-sector orders grew 3.1 percent, led by orders for boilers and turbines. The Cabinet Office raised its assessment of machinery orders from stalling to showing “signs of pick-up”. Overseas orders, which are not counted as core orders, grew 11.5 percent in August, due to some big-ticket orders including power generators and aircraft. Analysts expect capital expenditure to pick up gradually, backed by refurbishing demand, infrastructure investment for the 2020 Tokyo Olympic Games, and spending on labour-saving equipment, as well as spending encouraged by low borrowing costs enabled by the Bank of Japan’s negative interest rate policy. A sustained recovery in business expenditure should support the central bank’s view that a virtuous circle of private sector-led growth will take hold in the economy. Still, wage growth and inflation remain stubbornly low despite recent signs of rebounding private consumption, keeping the BOJ under pressure to maintain its massive monetary stimulus. The BOJ’s closely-watched quarterly tankan survey showed last week that big firms plan to increase capital spending by 7.7 percent in the current fiscal year ending in March 2018, underscoring the view business expenditure is on a firm footing.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)
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