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Japan Machine Orders Rise as Abe Vows Stimulus Ahead of Poll

Shinzo Abe
Shinzo Abe, Japan's former prime minister and president of the Liberal Democratic Party, second from right. Photographer: Tomohiro Ohsumi/Bloomberg

Japan’s machinery orders rose for the first time in three months, a sign that companies may expect the world’s third largest economy to return to growth in 2013.

Orders, an indicator of capital spending, climbed 2.6 percent in October from the previous month, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 3 percent increase. Large orders can cause volatile results.

Rising orders and production in October suggest the economy is laying the foundations for recovery after contractions in the last two quarters. The yen has weakened around 3.9 percent against the dollar in the last month, while Shinzo Abe’s Liberal Democratic Party, leading in polls before elections on Dec. 16, has pledged fiscal stimulus to stoke growth.

“Companies are still cautious but a weaker yen and signs of recovery in the global economy are providing some relief,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. “Japan’s economy is going to have a moderate recovery.”

The Nikkei 225 gained 0.6 percent to close in Tokyo at 9,581.46, the highest level since April 19. The yen was 0.3 percent lower at 82.75 per dollar as of 4:05 p.m.

Automobile Orders

Orders from the auto industry rose 17.8 percent, the first rise in five months, according to the Cabinet Office. Honda Motor Co. posted record U.S. sales in November as buyers returned to showrooms that were disrupted by Hurricane Sandy a month earlier.

Komatsu Ltd. the world’s second-biggest maker of construction and mining equipment, plans to spend as much as 50 billion yen ($606 million) over the next three years to improve efficiency at four domestic plants, Hiroshi Ishihara, a spokesman for the Tokyo-based company said yesterday.

“Abe’s likely victory could boost corporate sentiment,” Kazuhiko Ogata, chief economist for Japan at Credit Agricole SA said before the report. “The Japanese corporate sector holds huge piles of cash and has the capacity to increase capital spending at any time.”

Average cash and near cash holdings by companies in the Nikkei 225 Stock Index were $3.99 billion as of Dec. 11, according to data for 223 companies compiled by Bloomberg. Companies in the S&P 500 Index held $2.85 billion.

A victory for Abe’s LDP in this month’s election may increase pressure on the central bank to ease monetary policy.

“Unlimited Easing”

The Bank of Japan’s policy board meets next week to decide whether to increase its 66-trillion-yen asset-purchase program. On Oct. 30, the BOJ added 11 trillion yen, expanding its main policy tool for the second time in two months.

Abe’s call for unlimited monetary easing and an inflation target of 2 percent sent the yen to a seven-month low last month. A weaker yen reduces the price of Japanese products in overseas markets and increases the value of repatriated earnings.

Gross domestic product shrank an annualized 3.5 percent in the three months through September, according to a second reading of government data released two days ago. The government revised the previous quarter to a 0.1 percent contraction, meeting the textbook definition of a recession.

The economy will shrink an annualized 0.4 percent in the fourth quarter and then grow 1.5 percent in the first three months of 2013, according to economists surveyed by Bloomberg News

“Globally, the cycle of manufacturers’ performance seems to be improving,” said Kiichi Murashima, chief economist at Citigroup Inc. in Tokyo. “We expect Japan’s GDP to return to a growth path in the first quarter of next year.”

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