-Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance
Japan's core machinery orders dropped in January, suggesting weakness remained in capital spending. Machinery orders declined 1.7% following the 8.3% jump in December, whereas economists had predicted a 4.1% fall. Measured on an annual basis, core orders rose 1.9% in January, the Cabinet Office reported. Machinery orders are predicted to pick up 1.5% in the March quarter, marking three straight quarters of higher orders, while the BoJ predicts capital spending to rise in coming months as the world's third largest economy emerges from recession due to a rebound in exports and factory output.
Yet, a mixed flurry of economic data in recent months has kept alive market expectations the central bank will expand stimulus again later this year. Data released earlier in the week showed that Japan's gross domestic product expanded at an annualized 1.5% rate in the fourth quarter over the preceding three-month period, compared with a preliminary estimate of 2.2% growth. Measured on a quarterly basis, the economy grew 0.4% last quarter, shy of median analysts' forecast for a 0.5% expansion and less than the initial GDP estimate of 0.6%. While policymakers will welcome the fact that the technical recession last year appeared to be short lived, they will likely be disappointed as the slow recovery of Japan's economy after last year's sales tax increase severely undermined demand.
© Dukascopy Bank SA