Japan’s machinery orders extend gains in July

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TOKYO — Japan’s core machinery orders extended gains in July, raising hopes business growth spending may offset near-term headwinds from a global economic slowdown and a weaker yen, which has pushed up costs at home.

The surprise increase in core orders – a barometer of capital expenditure – could provide temporary relief for policymakers hoping for corporate investment to spur a domestic-led recovery in the world’s third-largest economy.

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The Reuters Tankan survey, however, separately showed that the business confidence of Japanese manufacturers retreated from a seven-month high in September, as the corporate sector faced persistent pressure from high raw material costs.

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Core orders, a highly volatile data series regarded as barometer of capital spending in the coming six to nine months, grew 5.3% in July from the previous month, Cabinet Office data showed.

The advance, which was boosted by a number of medium-sized orders for railway cars, was stronger than a 0.8% contraction forecast by economists in a Reuters poll and followed a 0.9% increase in the previous month.

Compared with a year earlier, core orders, which exclude volatile numbers from shipping and electric utilities, rose 12.8% in July, the data found.

By sector, orders from manufacturers dropped 5.4% month-on-month, weighed by declining orders in the electrical machinery and the automobile and parts sub-sectors.

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Those from non-manufacturers jumped 15.1%, as a 172.7% surge in orders from the transportation and postal sub-sector outweighed a fall in the wholesale and retail sub-sector.

The government kept its assessment on machinery orders unchanged, saying they were showing signs of picking up.

In the Reuters Tankan survey, the manufacturers’ sentiment index fell to 10 in September from 13 last month as the yen’s recent plunge to a 24-year low amplified the pain of higher import costs for domestic businesses.

Japan’s economy grew more than initially reported in April-June on higher business and consumer spending following the lifting of local COVID-19 restrictions.

But it faces growing risks from an economic slowdown in the United States, Europe and major trading partner China, while broad price rises and a weak yen are hitting consumer spending and weighing on business sentiment at home.

(Reporting by Daniel Leussink; Editing by Sam Holmes and Richard Pullin)