June machinery orders rebound 8.8pc in Japan but outlook looks bleak

Japan's core machinery orders rose for the first time in three months in June after a record plunge in May, but weak exports and industrial production cloud the outlook for the capital spending needed to sustain economic growth.

The highly volatile data, seen as a key indicator of capital spending, followed news that the economy suffered its biggest contraction since March 2011 as April's sales tax rise took its toll on private consumption.

Cabinet Office data showed core machinery orders grew 8.8 per cent in June from the previous month, much less than a 15.3 per cent gain forecast in a poll of economists, following a record 19.5 per cent drop in May.

Companies surveyed by the Cabinet Office forecast core orders would rise 2.9 per cent in July-September, after they fell 10.4 per cent in April-June in their first decline in five quarters.

"The forecasts for the third quarter do not look that strong," said Shuji Tonouchi, senior fixed-income analyst at Mitsubishi UFJ Morgan Stanley Securities. "Companies were initially optimistic about capital expenditure for the current financial year, but they could be turning cautious in the short term as consumer spending has been disappointing."

Corporate investment is one of the key - and so far missing - ingredients of Prime Minister Shinzo Abe's recipe for economic revival, dubbed "Abenomics", aimed at pulling Japan out of nearly two decades of stagnation and deflation.