Japan core machinery orders point to capex recovery ahead

Japanese machinery orders rose more than expected in June in a sign that companies are gradually becoming more willing to increase capital expenditure, which is essential to drive growth in the world’s third-largest economy.

Companies also expect core machinery orders, a leading indicator of capital expenditure, to rise in July-September, suggesting that business investment is starting to stabilize after a rocky performance in the previous quarter.

Prime Minister Shinzo Abe has compiled a stimulus package that focuses on infrastructure, which should support capital spending heading into next year, but risks remain that overseas economic turmoil could curb business investment.

Core machinery orders rose 8.3 percent, well ahead of the median estimate for a 3.1 percent increase, Cabinet Office data showed on Wednesday.

Manufacturers’ orders rose 17.7 percent, while orders from the services sector rose 2.1 percent, the data showed.

Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 5.2 percent in July-September, which compares with a 9.2 percent decrease in April-June.

Abe’s cabinet last week approved an economic stimulus package with 13.5 trillion yen in fiscal measures as a precaution in case Britain’s exit from the European Union leads to global economic turmoil.