Japan signals durable recovery as government pursues 'Abenomics'

Japan took another step towards solidifying its economic recovery in August when core machinery orders rose more quickly than expected, providing a welcome sign of the capital spending seen as vital for achieving sustainable growth.

The 5.4 per cent month-on-month rise in core orders, which exclude those for ships and power utilities, was the first gain in three months, data from the cabinet office showed yesterday. It also beat economists' median forecast of a 2 per cent increase.

The outcome is an encouraging sign for Japanese Prime Minister Shinzo Abe, who is hoping the positive mood generated by his reflationary policies, dubbed Abenomics, will lead to a virtuous cycle of higher capital spending and growth in wages and private consumption.

The government and the Bank of Japan see a recovery in capital spending as a key in driving a sustained economic recovery and breaking 15 years of grinding deflation, paving the way for the ultimate success of Abe's policies.

Growth so far this year suggests that the recovery in the world's third-largest economy is taking hold, although the jury is still out on whether capital spending is about to take a decisive turn for the better.

Second-quarter data released last month showed capital spending rose 1.3 per cent - the first increase in six quarters.