Japanese machinery orders rose for the first time in four months in December, a sign that companies will increase spending to meet demand from abroad.
Factory orders increased 1.7 percent from November, when they dropped 3 percent, the Cabinet Office said today in Tokyo. Orders, an indicator of capital spending in three to six months, were projected to climb 5 percent, according to the median forecast of 28 economists surveyed by Bloomberg News.
Demand from China and the U.S., Japan’s biggest export markets, is improving corporate earnings and prompting companies including Mitsubishi Electric Corp. and Hino Motors Ltd. to invest in plants and equipment. Companies surveyed by the government forecast orders will increase 2.7 percent this quarter after contracting at the end of 2010, the report showed.
“Japan’s capital investment is in an expansionary trend,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “The economy is emerging from a slump, but it’s difficult to anticipate companies speeding up the pace of investment.”
Maruyama said growing profits may encourage companies to invest more overseas given that demand abroad for Japanese products is growing.
The yen traded at 82.42 per dollar at 9:40 a.m. in Tokyo, compared with 82.44 before the report was published. The Nikkei 225 Stock Average fell 0.4 percent.
Economic data for December suggest that Japan’s export-led recovery has withstood an appreciation in the yen, which has gained more than 8 percent in the past year. Industrial production increased the most in 11 months and export growth accelerated in December.
Japanese companies’ earnings are recovering as sales to Asian emerging markets and the U.S. increase.
Mitsubishi Electric, a Japanese maker of factory equipment and home appliances, plans capital spending of more than 200 billion yen ($2.4 billion) in the year starting April compared with 185 billion yen the current fiscal year, company President Kenichiro Yamanishi said last month.
Hino Motors will build a new truck plant in Japan’s Ibaraki prefecture, President Yoshio Shirai said in January. The plant will make medium and large-size trucks for the Japanese and overseas markets, the company said.
“The recovery in overseas demand is gradually spilling over to domestic demand by improving corporate earnings,” Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, said before the report. “Business spending will likely recover gradually.”
A separate report today showed producer prices rose 1.6 percent in January, the fourth consecutive increase and beating the median estimate of 28 economists for a 1.4 percent gain.
More interest-rate increases by China could slow demand for Japanese exports, said Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo. China raised rates on Feb. 8 for the third time since mid-October to counter accelerating inflation.
“In the near-term, the growth momentum of China’s economy could be weakened a bit by China’s rate increases and possible further increases in the future,” Shiraishi said. “‘There’s a possibility that exports from Japan to China may slow a bit.”
A government report due next week will likely show that Japan’s economy contracted at an annualized 1.9 percent in the final quarter of 2010 as consumers cut back spending, according to the median forecast of 25 economists surveyed by Bloomberg News. A government subsidy program to buy fuel-efficient cars ended in September.
Domestic capital spending “demand is far from strong and we think a full recovery will take time,” said Chiwoong Lee, senior economist at Goldman Sachs in Tokyo. “We forecast a weak trend for the whole of fiscal 2011.”
From a year earlier, machinery orders fell 1.6 percent in December, today’s report showed.
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