Japan Investment Solid as Machine Orders Jump Most Since ’96

Japan’s core machinery orders jumped the most since 1996 in March, pointing to a continued recovery in business investment that could help drive growth.

Orders rose 19.1 percent from a month earlier, excluding ships and from electrical power companies, the Cabinet Office said in Tokyo today, more than an median 5.8 percent increase forecast by economists surveyed by Bloomberg News. Companies forecast orders to rise 0.4 percent in April to June, a fifth straight quarter of gains.

Strength in the leading indicator of private investment bodes well for resilience in an economy lacking support from exports and weathering a higher sales tax. Growth in capital spending could reduce the odds of further easing by the Bank of Japan to support the recovery.

“It’s possible business investment will start to rise at a faster pace than we expected,” said Daiju Aoki, senior economist at UBS AG in Tokyo. “The BOJ’s confidence must have increased with today’s data. It’s becoming unlikely for the BOJ to add stimulus in coming months.”

The gain core orders in March was the biggest since a 25.5 percent increase in October 1996, according to Bloomberg data. It was the first time in five quarters that companies surveyed had forecast an increase in orders, according to the Cabinet Office.

Capacity Constraints

Japan’s Topix index swung between gains and losses after back-to-back weekly declines, and was little changed at 10:37 a.m. in Tokyo. The yen was also little changed against the dollar at 101.55.

The biggest sources of strength in private-sector orders included transportation machinery, nuclear power generators and other heavy machinery, according to the Cabinet Office. There were 17 orders exceeding 10 billion yen, for a total of 342 billion yen, the Cabinet Office said.

Increasing demand driven by monetary easing, government spending and a pick up in private-sector activities has exposed supply capacity constraints in Japan’s economy, BOJ Governor Haruhiko Kuroda last week.

With production rising, companies may need to invest in more facilities to deal with supply limits, according to Marcel Thieliant, a Singapore-based economist at Capital Economics.

“The recovery in business investment remains on track,” Thieliant wrote in an e-mailed note. “The rising level of capacity usage also suggests that companies will continue to invest in machinery and equipment, despite the likely plunge in aggregate demand this quarter after the consumption tax hike.”

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