Japan: Huge Jump in Machinery Orders

Econintersect:   A surprise increase for core machinery orders produced a high not seen for five years in November 2013. The increase was 9.3% year-over-year and blew away the consensus estimate of 1.2%. According to Reuters, machinery orders is considered a bellwether for capital spending for the coming six to nine months.  The increase in expenditures for investment may continue to be strong through March as companies tries to get ahead of the increased consumption tax which starts in April.  Although called a consumption tax it is actually a value added tax applied to raw materials, at every stage of production and all the way through retail.

The year-over-year increase was the fifth largest on record and followed increases of 17.8% a month earlier and 11.4% in September.

Analysts were upbeat about the report.  From Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute (Reuters):

“We can expect capital expenditure to increase significantly, with the weak yen bolstering corporate profits and the economic outlook brightening.  This is pretty positive news for the BOJ as it reduces one source of concern about the economy. The chance of an early easing has decreased.”

Jonathan Soble wrote in the Financial Times:

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.

John Lounsbury

Sources:

• UPDATE 2-Strong Japan machinery orders a shot in the arm to Abenomics (Leika Kihara, Reuters, 15 January 2014)

• Japan: Conflicted Policy (GEI News, 04 July 2013)

• Japan machinery orders hit 5-year high (Jonathan Soble, Financial Times, 16 January 2014)

• Japan Oct Machine Orders Rebound, Indicating Higher Capex (MNI Deutsche Borse Group, 10 December 2013)