TOKYO, Dec 9 - Japanese machinery orders soared in October as companies strived to meet export demand, boosting hopes that an economic recovery remains on track even though growth in the July-September quarter was halved in revised data. Core private-sector machinery orders, a key though highly volatile gauge of trends in capital spending, rose a seasonally adjusted 17.4 percent in October from a month earlier. That was much better than a median forecast of a 5.0 percent rise in a poll of 22 economists last week. Compared with the same month last year, orders rose 23.1 percent. "The 17.4 percent figure is extremely strong, and confirms that capital spending is in an expansionary phase," said Mamoru Yamazaki, chief economist, Barclays Capital. "While it is too early to say whether such big gains can be sustained, I expect core private machinery orders to post a quarter-on-quarter rise in October-December," he added. Optimism has grown in recent months that the world's second largest economy is ready to emerge from a decade of stagnation, helped by rising exports, particularly to China.
The Bank of Japan's closely watched December "tankan" survey of corporate sentiment, due on Friday, will probably show more cheer among big firms, though less so among smaller ones. Reflecting the upbeat mood among larger companies, Nomura Securities on Tuesday raised its profit forecast for major firms for the current business year for and next one starting April 1. The monthly rise in machinery orders, the largest since August 2000, was spurred by demand for equipment for making semiconductors and electronic devices, though the government was quick to warn that the rate of increase may not be sustainable. Japan's chip makers -- a list that includes consumer electronics firms Sony <6758.T> and Matsushita Electric Industrial <6752.T> -- are projected to increase capital spending by 85 percent from last year to 770 billion yen ($7.18 billion), according to calculations. A cabinet office official said there were significant one-off factors in October, including the carrying over of some orders from September, but Bank of Japan Governor Toshihiko Fukui said he was sure the economy would keep recovering. "The buds of economic recovery are finally appearing. We want to make sure these buds are taken care of, so they grow," Fukui said in a speech at Nagasaki University in southern Japan.
CHIPS HEATING UP
The data helped the Nikkei share average <.N225> close 0.79 percent higher at 10,124.28. Komatsu Ltd <6301.T>, Japan's largest maker of construction equipment, rose 2.1 percent. Risks to Japan's recovery remain, however -- most notably the yen's recent rise to its highest level in three years against the dollar. The stronger currency makes Japanese goods more expensive and threatens to crimp exporters' profits. Finance Minister Sadakazu Tanigaki expressed concern about the yen's rise on Tuesday to 107.15 to the dollar, near a 3-year high of 107.10, saying it had diverged from fundamentals. An unemployment rate of 5.2 percent -- high by Japanese standards -- as well as entrenched deflation and sluggish personal consumption are also problems. In addition, the shaky banking system is hampering access to funds for many smaller firms -- the backbone of Japanese industry. Figures released on Monday showed lending by banks fell for the 71st straight month in November. Revised data released earlier on Tuesday showed real gross domestic product grew 0.3 percent in the quarter compared with the preceding three months, down from an initial estimate of 0.6 percent but still the sixth consecutive quarter of growth. The revision had been expected after a recent Ministry of Finance survey showed capital spending grew only 0.4 percent in the quarter, compared with 6.4 percent in April-June. The MOF survey is used to calculate revised GDP.
"It was in line with consensus," said Peter Morgan, chief economist at HSBC Securities. "It suggests that capital spending growth did slow down more than expected and maybe that gives a slightly lower growth of capital spending going forward, but I think the trend of expansion is still continuing." The revised GDP data showed capital spending for the quarter rose 0.5 percent from April-June, worse than the initial estimate of a 2.8 percent increase. For some economists, that added a note of realism to the recovery picture. "The revision down means that the Japanese economic recovery looks much slower than in the U.S," said Tomoko Fujii, a market analyst at Nikko Citigroup. "This will calm those who are overly optimistic about Japan's recovery story." A 3.1 percent decline in investment by non-manufacturers in the quarter over the same period a year earlier was behind the fall in overall capital spending, the MOF survey showed. Annualised real growth was revised down to 1.4 percent from a preliminary 2.2 percent, well below the 8.2 percent in the United States, but analysts still see positive growth this fiscal year ending March 31. "Since the economy was able to maintain positive growth in the July-September quarter, we expect GDP to post around 2.5 percent real annualised growth for the year to next March," said Shuji Shirota, an economist at Dresdner Kleinwort Wasserstein. ($1=107.28 yen)//