"In Japan, the decline in domestic demand following the increase in the consumption tax was larger than expected"
- International Monetary Fund
Japan's machinery orders, leading gauge of capital spending, increased for the third consecutive month in August, in a tentative sign companies are investing their profits in plants and equipment spurring growth in the world's number three economy. Core machinery orders rose 4.7% in August from the previous month, overshooting expectations for a 0.9% gain and compared to the July's increase of 3.5%. However, analysts doubt that the 4.7% advance is enough to alleviate concerns that the nation's economy is losing momentum even amid the Bank of Japan's ultra accommodative monetary policy and the government's readiness to take steps. A sales tax increase that came into effect in April in a bid to reduce its debt-to-GDP ratio which currently stands above 240% caused the deepest economic slowdown in the second quarter since the 2008-2009 global financial crisis, as the economy shrank an annualised 7.1%. Prime Minister Shinzo Abe is due to decide in December whether the economy will be able to withstand another planned hike in sales tax till 10% in October 2015.
The BoJ kept its monetary policy unchanged this week and stuck to the view that the economy continues to recover moderately. However, the IMF downgraded its outlook on Japan's economic growth, expecting the economy to expand 0.9% this year and 0.8% in 2015.
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