Japan machinery orders hit five-year high
Jan 27, 2014
Japanese companies are gearing up for significant new investments in domestic factories, distribution networks and other infrastructure this year, government data suggested on Thursday, in a shift that would bolster the country’s Abenomics-driven expansion.
Orders of new machinery by businesses, considered a leading indicator of overall capital investment, surged to a five-year high in November, rising 9.3 per cent to Y882.6bn. The year-on-year increase, which handily beat analysts’ expectations, was the second in two months and the fifth biggest on record.
Business investment has been a missing element in Prime Minister Shinzo Abe’s year-old effort to stimulate the Japanese economy. Mr Abe has ramped up government spending while the Bank of Japan has massively loosened monetary policy, but private companies – possibly concerned that the state-driven surge in demand will be temporary – have been cautious about expanding their production capacity.
Capital investment picked up slightly in the second quarter of last year and was flat in the third. “The real test for Japan is whether companies revive their spending,” said Masamichi Adachi, senior economist at JPMorgan.
The machinery orders report excludes the volatile shipping and electric power sectors, but it is still prone to sizeable month-to-month fluctuations. Even so, Marcel Thieliant, an analyst at Capital Economics, said Thursday’s data nonetheless “point to a renewed recovery in business investment”.
He noted that Japanese companies can easily fund such investment, thanks to deep cash reserves and ultra-low interest rates. In the services sector, in particular, companies are looking to upgrade ageing information technology and distribution systems after suppressing their spending for years.
The non-manufacturing sector is operating at its highest capacity utilisation level since the early 1990s, according to surveys by the BoJ. In November, machinery orders from services companies rose 8.1 per cent, compared with a 6.0 per cent rise in orders from manufacturing groups.
Mr Abe is introducing tax incentives for investment in the hope of keeping companies spending. One question is whether increases in consumer demand can survive a hike in Japan’s national sales tax in April; another is whether overseas economies, some of which are sputtering, continue to buy Japanese exports.
Profits at big, globe-spanning manufacturers such as Toyota have jumped thanks to the weaker yen, which has pushed up the value of their foreign sales in yen terms, but so far the volume of goods they are shipping from Japan has barely budged.
“Companies seem to have softened their stance and begun moving ahead with spending plans,” said Harumi Taguchi, an analyst at IHS, a research group. “The strength of the recovery for exports will be a key to increased capex.”
Source: FINANCIAL TIMES