Japan's core machinery orders rise 8.8%

The increase in core orders, which exclude particularly volatile demand from power companies and for ships, was much higher than market expectations of a 1.8 percent rise, according to a Dow Jones and Nikkei business daily poll.

July's data followed a 9.1 percent drop in May and a marginal recovery of 1.6 percent in June, suggesting the outlook for business investment may hold up for now despite headwinds from a strong yen, deflation and slowing growth.

The government expects machinery orders to grow by just 0.8 percent in the July-September quarter.

After two consecutive months of gains, the machinery orders numbers point to a gradual recovery in spending, said Hiroshi Watanabe, an economist at Daiwa Institute of Research.

“Capital spending bottomed out late last year through to early this year,” he said. “Corporate capital spending will continue recovering slowly this year.”

Private sector orders for machinery are closely watched because they provide an advance indication of business investment sentiment, a significant part of annual economic output.

But a surging yen still poses a large threat to the Japanese economic outlook, possibly prompting some companies to shift their domestic investment overseas, a government official was quoted by Dow Jones Newswires as saying.

“I want to emphasize my feeling of crisis that the strong yen poses a very large downside risk to the economy,” said the unnamed Cabinet Office official.

The yen's strength is creating uncertainty over whether Japanese companies will invest in Japan or shift their planned investment to other countries, the official said.

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