Surge in machine orders boosts Japan outlook

Japan's core machinery orders rose in December at the fastest pace in six months, and companies expect orders to increase this quarter in a positive sign that business investment will underpin a firm recovery for the recession-hit economy.

The 8.3 per cent month-on-month gain in core machinery orders, a leading indicator of capital spending in the coming six to nine months, blew past the median estimate for a 2.4 per cent increase.

Companies surveyed by the Cabinet Office also expect orders to rise 1.5 per cent in January-March, after a 0.4 per cent increase in October-December.

Strong capital expenditure is important because this could create more jobs and support consumer spending, which in turn adds momentum to the pace of inflation gains and help it reach the central bank's 2 per cent price target.

"Corporate earnings have been good recently, and companies are starting to use some of these earnings to increase capital expenditure," said Norio Miyagawa, a senior economist at Mizuho Securities. "This is also a sign that domestic demand is doing well. You could say that the economy is headed in a direction that is favourable for the [Bank of Japan] and the government."

Orders from manufacturers rose 24.1 per cent in December, overturning a 7 per cent decline in the previous month, Cabinet Office data showed. Those from non-manufacturers were up 7.2 per cent, against a 0.5 per cent rise in November. Compared with a year earlier, core orders grew 11.4 per cent, well ahead of the median estimate for a 5.9 per cent annual increase.