Japan Machine Orders Jump to Highest Since Lehman Sank: Economy

Japan’s machinery orders jumped to 819.3 billion yen ($8.4 billion) in August, the highest since the collapse of Lehman Brothers Holdings Inc. in 2008 and a sign of a strengthening economic revival.

Orders excluding ships and power generation rose 5.4 percent from the previous month, more than double the 2.5 percent median forecast in a Bloomberg News survey of 28 economists. While large bookings can make the numbers volatile, Credit Suisse Group AG. said today’s data confirm an “upward trend” in capital spending.

Prime Minister Shinzo Abe is gambling that the economy’s momentum and 5 trillion yen of extra stimulus will be enough to prevent a sales-tax increase scheduled for April from derailing a recovery driven by the policies called Abenomics. Today’s numbers build on a Tankan report released Oct. 1 that showed confidence among large manufacturers at the highest since the early stages of the global credit crisis in 2007.

“Capital spending is on a recovery trend,” said Minoru Nogimori, an economist at Nomura Securities Co. in Tokyo. “Japan’s economic recovery is looking steady.”

The Cabinet Office raised its assessment of machinery orders, saying they are picking up.

In a note, Barclays Plc. analysts said non-manufacturing companies were leading the recovery in Japan’s capital spending and that key focuses will be on when improvements will spread to manufacturers and when the government will introduce tax breaks for expenditure.

Inflation Goal

The Topix index was up 0.6 percent at 2:50 p.m. in Tokyo, while the yen slipped 0.4 percent to 97.73 per dollar.

After unleashing fiscal and monetary stimulus, Abe’s prospects of achieving a longer-term revival may depend on companies raising wages and boosting investment, rather than sitting on piles of cash.

Nogimori said that weakness in the yen may help to offset the blow to the Japanese economy from next year’s sales-tax increase, by supporting the nation’s exporters. “As long as exports hold steady, companies may continue to spend.”

The International Monetary Fund said this week that the Bank of Japan is likely to reach its 2 percent inflation goal later than a targeted two years. Excluding the effect of the sales-tax increase, inflation “is projected to move up only very gradually, reaching the 2 percent target sometime in 2016–17,” the IMF said in a report.

Policy Consistency

Elsewhere in Asia, the Bank of Korea today cut its forecast for the nation’s growth for next year to 3.8 percent from a previous 4 percent estimate and trimmed its 2014 inflation outlook, while leaving its benchmark interest rate unchanged for a fifth month.

The lower growth outlook reflects downward adjustments of world economic and trade growth and “should not be seen as a sign that the economy is losing vitality,” BOK Governor Kim said, though the central bank warned in a statement downside risks predominate.

Kim cited uncertainties from the prospect of Federal Reserve tapering to the U.S. debt-ceiling impasse, and said he expects Janet Yellen to maintain a “consistent” policy if confirmed Fed chairman.

“Policy consistency should not be taken as no change at all,” Kim said at a press conference in Seoul.

China Watching

In Australia, the unemployment rate unexpectedly declined in September, adding to evidence a two-year interest rate cutting cycle is boosting demand.

Chinese Premier Li Keqiang said China is paying “great attention” to the U.S. debt-ceiling issue, adding his voice to official concern that wrangling over a borrowing limit risks a default in the world’s biggest economy. Li didn’t elaborate on the concern in a report by the official Xinhua News Agency posted today to the government’s website in Chinese, while a separate English report said Li was “expressing Beijing’s concern about Washington’s debt-ceiling problem.”

The Bank of England is forecast to keep its key rate and asset purchase target unchanged today, according to a survey of economists by Bloomberg News.

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