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Japan machine orders dips, but uptrend intact

TOKYO: Japan's machinery orders dipped in February, but economists dismissed the drop as a blip after strong figures in recent months and said corporate activity should keep nursing the economy back to health.

Core private-sector machinery orders, a key leading indicator of corporate capital spending, declined 2.5 percent in February from the previous month, the Economic Planning Agency (EPA) said on Monday.

The volatile figure, which excludes orders from electric power companies and shipbuilders, was slightly better than a median forecast of a 4.0 percent decline in a Reuters survey. Projections ranged from a 1.0 percent rise to a 6.5 percent fall, with all but one economist forecasting a decline.

Corporate capital spending, the second-largest component of the economy after private consumption, was the only key area to pick up late last year as the economy slipped into technical recession.

Despite the drop in February machinery orders, economists remain optimistic about the outlook for corporate capital spending. They noted the drop in February followed an unexpected rise of 0.8 percent in January and a 16.1 percent jump in December.

"It was within my expectations. The figure will not change our expectations that corporate capital spending will gradually improve," said Souichi Okuda, senior economist at Nippon Credit Bank.

CONSUMPTION REMAINS AS MISSING LINK

Corporate activity has been a bright spot in the world's second-largest economy, with industrial output and corporate profits increasing and companies investing more in information technology.

But some economists took a cautious stance.

"The improvement in machinery orders has been led by information technology-related investment, but I am worried that the movement has not fully spread to other areas," said Junichi Makino, an economist at Daiwa Institute of Research.

The BOJ's latest quarterly "tankan" survey showed that Japanese companies were more upbeat about business conditions and planned to cut capital spending by just 0.6 percent in the new business year that started in April after slashing such investment the two previous years.

"Corporate sector activity has recovered. With corporate capital spending expected to remain firm, the question is whether this will lead to a pickup in household incomes and then in personal consumption," said NCB's Okuda.

He added that personal spending would be a key factor to gauge when the central bank will end its 14-month-old policy of guiding the overnight call rate virtually to zero percent.

Personal spending, which accounts for 60 percent of the economy, is the missing link in Japan's recovery and remains weak as consumers kept a tight grip on their wallets as companies restructure, driving unemployment to a record high while salaries and bonuses in many industries decline.

BOJ Governor Masaru Hayami has recently used more specific wording than his oft-repeated line that the BOJ would maintain its current policy until deflationary fears abate, saying the state of private demand, such as personal spending, was one factor in deciding when to end the policy.

The BOJ Policy Board was meeting on Monday as the government released the data, but market participants said they expected no change in monetary policy.-Reuters