By Kantaro Komiya

TOKYO, Reuters – Japan’s core machinery orders rose unexpectedly in April at the fastest rate in 18 months. This was despite higher energy prices and China’s COVID-19 lockdowns.

Japan’s closely monitored barometer for business investment has risen, bode well for Japan’s corporate sector. The economy is also facing global inflation and a sharp decline in the yen at 24-years lows.

The core machinery orders data, which is a volatile series that can be used as an indicator for capital expenditures, increased 10.8% in April compared to the prior month. This was the largest monthly increase since October 2020 according to the Cabinet Office data on Wednesday.

The 1.5% drop was much stronger than the median economist forecast. It also followed an increase of 7.1% in March.

Takeshi Minami (chief economist, Norinchukin Research Institute) stated that “it was a strong figure in spite concerns about global supply chain such as the Ukraine War and China’s lockdown as well as inflationary pressures to profits.”

According to data, 10.3% of machinery orders were placed by manufacturers, with electronic machinery leading the charge, followed closely by information technology, auto and automotive sectors.

According to a government official, “Sectors involved in the production of semiconductors continued their active investments” while automakers were more optimistic as of April.

Kazuma Kirshikawa of Daiwa Institute of Research stated that important industries like auto and other equipment producers had likely resumed investing after being delayed between January and February because of rising COVID-19 infection rates in China.

Service firms saw 8.9% growth in orders, due to strong demand from financial and transportation companies.

In April, external orders rose 52.1%. This is the largest growth rate since February 2021.

Core orders, which are not volatile numbers such as shipping or electric power utilities, increased 19.0% in April compared to a year ago, according to data.

According to the government, it upgraded its estimate of machinery orders in December for the first-time since then. It stated that there was a pick up in machine order numbers.

RESILIENT BUSINESS SPENDING

Minami of Norinchukin said, “While the investment plans of firms are sound and don’t indicate a near-term slowdown in growth,”.

Shintaro Inagaki from Mizuho Securities, senior market analyst, expressed optimism that orders will rise in fiscal 2022 because of manufacturers’ readiness to invest before the pandemic rebound.

The Reuters Tankan on Wednesday showed that Japanese producers’ confidence rose in June due to the resilient demand.

Coronavirus curbs meant that private consumption was held steady, and the world’s third-largest economic country contracted 0.5% per year in the January-March quarter.

Daiwa’s Kishikawa stated that while April-June might see a drop in exports or output, investment by businesses would still be robust. “The fact is, firms may have seen China’s lockdown as an unforeseen event, and they continued spending,” he said.