Japanese core machinery orders rose a stronger-than-expected 4.2 percent in January from the previous month, the government said, as orders from manufacturers were strong on the back of fast-rising overseas demand.
The figures released Wednesday by the Cabinet Office add to a recent run of data showing that Japan’s economy is again growing after a contraction in the fourth quarter of 2010, when the country’s gross domestic product fell 1.1 percent at an annual rate.
The core machinery figure, fueled by a 7.2 percent gain in demand from manufacturers, was larger than the 3 percent increase expected by economists surveyed by Dow Jones Newswires and the Nikkei. Core orders had risen 1.7 percent in December. Overall orders, which include more volatile data for big-ticket items such as orders for new ships or electric power equipment, jumped 19.4 percent, the data showed.
Among all manufacturers, orders from the chemical and nonautomobile transport equipment sectors were particularly strong, rising 30.5 percent and 237.1 percent, respectively, from a month ago.
“We see good demand from industries that are closely related to exports,” said Seiji Shiraishi, chief economist at HSBC Securities.
Reflecting the importance of the export sector, orders from overseas surged a record 71.4 percent.
“Today’s report, along with other recent indicators, suggest business spending should continue increasing moderately in the January-March quarter, though it’s still too early to say if it will accelerate,” said Norio Miyagawa, senior economist at Mizuho Research & Consulting.
The Ministry of Economy, Trade and Industry reported this month that industrial output rose a seasonally adjusted 2.4 percent in January as production of autos, semiconductor production devices and other machinery benefited from overseas demand.
On the back of firmer data, both the government and the Bank of Japan have recently upgraded their forecasts for the economy, with expectations of a positive GDP figure for the first quarter of the year.
But caution is tempering the optimism as domestic demand is sluggish, especially among nonmanufacturers, who appear to believe the current economic momentum is still fragile. Demand from non-manufacturers fell 2.7 percent from the previous month.
“While the data confirmed that the recovery among manufacturers is continuing, we must also point out that activity among non-manufacturers is still weak,” said a government official briefing reporters on the data.
Such corporate sentiment is due in part to the recent gains in crude prices. Amid continued deflationary pressure, analysts say the crude movement could be a large factor weighing on their profits.
“Even if oil prices rise further, firms won’t be able to hike prices of products easily,” HSBC’s Shiraishi said.
The government official added that the 71.4 percent surge in orders from overseas was partly due to large-scale, one-time orders from the chemical industry and telecommunications firms.
“Still, the underlying trend of strong demand in Asia, particularly China and the US, will continue to underpin recovery in overall business investment,” Mizuho’s Miyagawa said.
Machinery orders are widely regarded as a leading indicator of corporate capital investment, which accounts for 15 percent of Japan’s gross domestic product.
Without adjustment for seasonal factors, core orders were up 5.9 percent from a year earlier in January, the data showed.