Japan machinery orders rise more than forecast in sign of economy rebound

March 10, 2011 - 0:0

Japan’s machinery orders rose more than economists expected in January, signaling that companies will boost spending as economic recoveries abroad strengthen.

Factory orders increased 4.2 percent from December, the biggest jump in five months, the Cabinet Office said on Wednesday in Tokyo. Orders, an indicator of capital spending in three to six months, were projected to climb 3 percent, according to the median forecast of 28 economists surveyed by Bloomberg News.
Japan’s stocks rallied on optimism the economy will rebound from a fourth-quarter contraction, spurred in part by a retreat in the cost of oil. Companies from Asahi Glass Co. to Nippon Power Graphite Co. have unveiled investment plans as global growth accelerates.
“Capital spending has been rising gradually, and looking at today’s machinery report, those increases will probably continue,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “We can expect investment growth from manufacturers to be sustained given export growth.”
The Nikkei 225 Stock Average jumped 3.8 percent last month and was up 1 percent at 11 a.m. in Tokyo.
--------------Revised growth
The Cabinet Office tomorrow will probably say the world’s third-largest economy shrank at a revised annual pace of 1.2 percent in the fourth quarter, according to the median estimate of 16 economists surveyed by Bloomberg. The preliminary report on the gross domestic product released Feb. 14 showed the 1.1 percent contraction was driven by a slowdown in exports.
That demand may be coming back. China’s imports soared 51 percent in February from a year before, while the jobless rate in the U.S. unexpectedly slid to the lowest level in almost two years. China and the U.S. are Japan’s two largest markets. Wednesday’s report showed overseas orders rose 71 percent from the previous month, a record pace, signaling export demand is increasing.
“With the pickup in production, manufacturers are getting ready to produce more,” Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, said before the report. “The investment recovery is likely to continue, albeit gradually.”
Japan’s government raised its assessment of the economy for a second straight month in February, saying the nation is emerging from “a recent pause” as production and exports gain pace. Factory output rose for a third month in January and companies plan to boost output in February and March, setting the stage for the first advance in production in three quarters.
Those brighter signs are boosting confidence in the economy, making it likely that machinery orders will continue to rebound, Nomura Securities Co. said in a report last week.
-------------New plant
Nippon Power Graphite, a joint venture between Sumitomo Corp. and Nippon Coke and Engineering Co., said Feb. 28 it will spend 1 billion yen for a plant to make materials used in lithium-ion batteries. The plant, in Fukuoka, southern Japan, will triple the venture’s production capacity to 1,000 metric tons, the company said.
Asahi Glass said Feb. 9 it will invest 20 billion yen in a new furnace in Hyogo to meet booming demand for mobile devices. The glassmaker expects net income to rise 5.5 percent this year.
At the same time, a 9 percent advance in the yen against the dollar in the past year has given companies an incentive to move production outside of Japan. Michijiro Kikawa, chief executive officer at Hitachi Construction Machinery Co., said his company plans to procure more of its components abroad to protect its profits from currency swings.
“Until now we’ve followed a concept that key components are developed and produced in Japan and they are supplied globally,” he said in a Feb. 23 interview. “We won’t necessarily stick to Japan” for less important parts, he said.
(Source: Bloomberg)