UPDATE 2-Japan machinery orders up, capex outlook brightens

(For more stories on the Japanese economy, click [ID:nECONJP])

* Machinery orders rise 5.4 pct in March

* Manufacturers expect Q2 orders to rise 1.6 pct qtr/qtr

* Wholesale prices slow pace of decline
(Adds details, background)

By Tetsushi Kajimoto and Rie Ishiguro

TOKYO, May 17 (BestGrowthStock) – Japan’s core machinery orders
rose in March and manufacturers expect further increases in the
coming months, suggesting capital spending will keep growing
moderately as the economy recovers with the help of Asian
demand.

Rising commodity prices slowed annual wholesale price falls
in April for the eighth straight month, although economists say
deflation will persist at least for another year as any
recovery in corporate and household spending will be subdued.

The Bank of Japan is therefore expected to keep interest
rates near zero and could loosen monetary policy further if
renewed risks arise to recovery in the world’s second largest
economy, analysts said.

“On the whole, today’s data suggests that capital spending
will continue to grow moderately as corporate profits are in
v-shaped recovery,” said Junko Nishioka, chief Japan economist
at RBS Securities.

Core private-sector machinery orders rose 5.4 percent in
March, roughly matching a median forecast for a 5.5 percent
increase and following a revised 3.8 percent fall in February,
government data showed on Monday. [JPMORD=ECI]

Manufacturers surveyed by the Cabinet Office forecast that
core orders, a highly volatile series regarded as an indicator
of capital spending in the coming six to nine months, would
rise 1.6 percent in April-June from the previous quarter.

That would be the third straight quarter of increases after
a 2.9 percent increase in January-March.

Japan’s economy probably grew a brisk 1.3 percent, or an
annualised 5.4 percent, in the first three months of this year,
preliminary gross domestic figures are expected to show on
Thursday, as solid exports to fast-growing Asia supported
overall growth and corporate profits. [ID:nTOE64504A]

Economists said growth will probably slow in April-June, as
some countries in the region have started to tighten their
policies to avoid overheating and keep inflation in check.

“Core orders are recovering moderately, but the outlook
isn’t so strong. Companies are still cautious about spending,”
said Takeshi Minami, chief economist at Norinchukin Research
Institute.

“The financial market turmoil in Europe may affect growth
in other countries and hurt Japanese business sentiment. There
are also risks that the European market turmoil may push up the
yen, preventing a full-fledged recovery in capital spending.”

Reflecting some concerns on the global economic outlook,
Japanese manufacturers forecast a 12.8 percent drop in foreign
orders. That would be the first fall in four quarters.

Wholesale prices fell 0.2 percent in the year to April,
Bank of Japan data showed on Monday, less than the median
forecast for a 0.3 percent decline. [JPCGPY=ECI]

“Corporate activity is recovering and no longer putting
downward pressure on wholesale prices. Wholesale prices will
soon start rising. With a lag of about a year, consumer prices
will stop falling some time next year,” said Takuji Aida,
senior economist at UBS Securities.

Economists think Japan will remain susceptible to deflation
as domestic demand remains constrained by an ageing population.

To help break this deadlock, the BOJ is considering a new
loan programme aimed at encouraging banks to lend more to
industries with growth potential, in what it describes as a
long-term approach to beating deflation.

Governor Masaaki Shirakawa last month instructed staff to
come up with the framework, which may be announced at a rate
review next week or at the following policy meeting in June.
[ID:nTOE64D02G]

Investment Basics

(Editing by Michael Watson and Tomasz Janowski)

UPDATE 2-Japan machinery orders up, capex outlook brightens