- Mitsubishi UFJ Morgan Stanley Securities
Japan's core machinery orders advanced in January, driven by large orders from the steel industry despite lingering concerns about China's economic slowdown. Core machinery orders, which strip out ships and utility items, surged 15.0% month-on-month in January, according to Japan's Cabinet Office, much stronger than the 2.0% gain forecast by analysts and above the 4.2% increase in orders in December. On an annual basis, core orders surged 8.4%. The rise in machinery orders suggests businesses are expecting a recovery in demand after a lacklustre December quarter, when the world's third biggest economy shrank 0.3% due to a sharp decrease in private consumption. While many economists predict growth to have recovered modestly in the current quarter, the clouded outlook for global demand has prompted some to forecast another contraction that will push Japan back into technical recession, defined as two quarters in a row of shrinking gross domestic product. Expectations for further fiscal and monetary stimulus could remain elevated due to concerns that turbulence in overseas economies could hurt consumer sentiment.
The Bank of Japan surprised investors in January with the introduction of negative interest rates, but the move has sparked concern that central bank is running out of tools to generate inflation.
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