Japan's machinery orders rise 12.7%

Japan's machinery orders, a closely watched barometer of corporate capital spending, rose faster than expected in October with the first gain in three months, official figures showed yesterday.

But economists warned against being overly optimistic about the figures amid concern that a key central bank survey due later this week will show companies are growing more cautious about the profit outlook.

Core machinery orders, which exclude particularly volatile demand from power companies and for ships, rose 12.7 percent in October from September to ¥1.08 trillion (US$9.7 billion), the Cabinet Office said.

The increase beat market expectations for a gain of about 7.3 percent, following declines of 7.6 percent in September and 7.7 percent in August.

Despite rebound, the Cabinet Office said it was sticking to its assessment that the overall trend in machinery orders is flat.

Economists also reacted with caution.

Goldman Sachs senior economist Naoki Murakami said the jump in orders was "a reaction to the declines in the previous two months."

The improvement was given a boost by higher orders for computers and semiconductor-making devices, he said.

"Since these orders are highly volatile month-on-month, there is a need for caution about the sustainability" of the recovery, he said, adding that slowing global economic growth was likely to be having an impact.

Japan's has been steadily recovering from recession in the 1990s but there are growing concerns about the impact of slowing US growth and tough conditions facing small companies in particular.

Robust by companies on new equipment and factories has been a key driver of the recovery, but there are signs that firms are becoming more reluctant to ramp up spending due to the chilly global economic environment.

Toshio Sumitani, economist at the Tokai Tokyo Research Centre, also warned against being excessively optimistic about the health of the Japanese economy.

The machinery orders data suggested that "economic growth is sluggish," he said.

Core orders rose 3.3 percent year-on-year in October after a decline of 7.0 percent in September.

For the three months to this month, machinery orders are forecast to rise 3.1 percent from the previous quarter, the Cabinet Office said.

Machinery placed by the manufacturing sector rose 10.2 percent in October from September, while orders by non-manufacturers soared 13.7 percent.

Foreign orders grew 16.0 percent from September while public sector orders jumped 21.6 percent.

The data failed to boost Japanese share prices as investors moved to take profits from the recent market rally, amid caution ahead of a key US interest rate decision due today.