Japanese machinery orders surged at a record pace in December, propelled by large projects, underscoring robust corporate momentum as Prime Minister Sanae Takaichi moves to spur investment in priority areas.
Core machine orders rose 19% from the previous month, rebounding from an 11% slide in November, the Cabinet Office reported Thursday. It marked the strongest gain since the comparable data series began in 2005 and far surpassed economists¡¯ forecast of a 5% increase. From a year earlier, orders advanced 17%, the fastest pace since April 2022.
The data, which tends to be volatile, serves as a leading indicator of capital expenditure. The increase in December was led by petroleum and coal products, as well as nonferrous metals.
While the figures can be skewed by large contracts, the latest report nevertheless indicates a solid investment backdrop. The result offers some relief after gross domestic product data for the fourth quarter missed consensus estimates, with business outlays among components that were weaker than expected.
¡°The data were genuinely strong,¡± said Yutaro Suzuki, an economist at Daiwa Securities. ¡°Non-manufacturers remain firm, supported by labor saving investment to address worker shortages, while manufacturers benefited from a rebound from the previous month and several large projects.¡±
Looking ahead, capital expenditure is expected to stay somewhat firm, supported in part by Takaichi¡¯s investment agenda. After securing reelection as prime minister, Takaichi said Wednesday that the government would introduce multiyear budgets and long-term funds to back research, development and investment in plants and equipment.
Still, some risks remain, including higher borrowing costs, which could curb corporate spending plans. Also, fraught ties with China could disrupt the flow of rare earth supplies, weighing on spending by manufacturers.
Daiwa¡¯s Suzuki also pointed out that backlogs for machinery orders are steadily piling up.
¡°Labor shortages have caused delays in responding to those orders,¡± he said, ¡°As a result, deliveries are being pushed back and the spending is not yet recorded as capital investment.¡±
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