- Takeshi Minami, chief economist at Norinchukin Research Institute
Japan's machinery orders unexpectedly dropped for a second consecutive month in July, building pressure on the Bank of Japan to step up fresh stimulus, perhaps as early as in October, to kick-start the world's third biggest economy, which struggles to recover from a slump. Core machinery orders, a proxy of capital spending in the coming six to nine months, plunged 3.6% in July, according to the Cabinet Office. The figure followed the 7.9% slump in June and was worse than a 3.7% rise expected by economists. Policy makers have been relying on companies to use hefty profits gained from a weaker Yen and lower fuel costs to increase wages and investment, underpinning a positive cycle of rising income and higher spending. Yet, the scenario has yet to materialize amid tepid capital spending, weakness in private consumption and sluggish exports.
Analysts revised down Japan's growth outlook to an annualized 1.67% in the current quarter, after a 1.2% slowdown in the second quarter. The economy is expected to expand just 1.11% in the current fiscal year. Many analysts question the BoJ's optimism that a steady economic recovery will help bring inflation to its 2% target by around September 2016. As exports falter and China's gloomy growth prospects dim global growth, the BoJ is expected to offer a bleaker assessment on overseas economies at next week's policy review, but many policy makers prefer to hold off on expanding stimulus for now.
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