TOKYO, Sept 9 - Orders for new machinery at Japanese companies slipped back in July from June, but improved over the same month last year, indicating that Japan's nascent recovery is still on track. Core private-sector machinery orders, a key gauge of trends in capital spending, fell 3.1 percent in July from June on a seasonally adjusted basis, government data showed on Tuesday. That was worse than a median forecast for a fall of 1.4 percent in a poll of 23 economists last week. Over the same month last year, orders rose 6.1 percent, below a poll forecast of a rise of 7.8. Economists had said a month-on-month fall was likely after a 2.4 percent rise in June and May's 6.5 percent surge. Those gains were fuelled in part by pent-up demand from earlier in the year, when the Iraq war and Asia's SARS outbreak had dampened economic activity.
"We had a couple of good months of increases and so at some point a little correction is necessary," said Peter Morgan, chief economist at HSBC Securities. "There's no reason to think this implies a slowdown at this stage." Rising share prices, improving corporate profits and a pickup in exports have combined recently to boost hopes that Japan is finally shaking off its 10 years of stagnation. The new-found confidence is triggering fresh spending by companies such as chip maker NEC Electronics Corp <6723.T>. It plans to lift capital spending by over 30 percent this business year in an effort to boost semiconductor production capacity and improve efficiency in its manufacturing lines.
"We want to spend over 80 billion yen this business year to replace equipment that is leading to bottlenecks in our production," its president, Kaoru Tosaka, told in an interview. The government will announce revised economic growth data for the April-June quarter on Wednesday, with economists expecting a markup from the previous 0.6 percent estimate. The International Monetary Fund sees Japan's economy expanding by two percent this calendar year, which would be a big step up from last year's 0.2 percent gain. All of which is music to the ears of Prime Minister Junichiro Koizumi, who faces a September 20 election for leadership of the ruling party -- a job that usually carries with it the prime ministership -- with his stewardship of the economy under fierce scrutiny. The core orders, which exclude those for ships and equipment at electric power firms, are regarded as a leading indicator of capital spending in the coming six to nine months, although the data tends to be volatile.
"It's probably best to look at this as a reaction to the big month-on-month rises in May and June," said Mamoru Yamazaki, chief economist at Barclays Capital Japan. "The trend is still up."//