January 14, 2006	Saturday	Zilhaj 13, 1426

TOKYO, Jan 13: Japanese machinery orders grew less than forecast in November but increased for a second straight month, supporting expectations that capital spending would fuel a steady economic recovery in the coming months.

In another sign of sustained economic expansion, the Bank of Japan said in a separate report on Friday that all of its nine regional branches observed a pickup in their local economies, albeit at varying speeds.

Core private-sector machinery orders rose 2.3 per cent from October on a seasonally adjusted basis, government data showed, below a consensus forecast of a 5.5 per cent increase. They had risen 4.8 per cent the previous month.

“The (machinery) figures are below expectations. But they are up for the second straight month and the underlying uptrend appears to be intact,” said Seiji Adachi, senior economist at Deutsche Securities.

“With deflation ending, corporate earnings growth is likely to support business investment.”

The data, though notoriously volatile, is considered a gauge of capital spending in the coming six to nine months.

The Nikkei share average fell slightly immediately after the data, but quickly erased losses to end up 0.06 per cent on the day at 16,454.95, its highest close since September 2000.

The orders figures underscore the view that Japan’s economy is continuing to recover after logging an annualized growth rate of 1.0 per cent in real terms in July-September.

A rebound in exports and improving corporate profits has helped fuel a recovery in employment, wages and personal spending. A soaring stock market has also lifted business and consumer sentiment.

“The number is still in line with an overall rising trend,” said Takuji Aida, chief economist, Barclays Capital.

“Companies’ capital spending seems to be accelerating and the fall in bank lending is shrinking. All of this points to a rise in machinery orders ahead.”

Compared with the same month last year, core machinery orders, which exclude those for ships and for machinery at electric power firms, rose 0.2 per cent.

Overall orders, including ships and electric power equipment, rose 11.2 per cent from a month earlier.

A breakdown showed core orders from manufacturers rose 11.7 per cent from a month earlier, while those from non-manufacturers rose 7.7 per cent, indicating the economic recovery was broad-based.

BOJ Governor Toshihiko Fukui expressed confidence that the Japanese economy was on track to overcome deflation, a remark which reinforced market speculation that the central bank would end its ultra-easy monetary policy sometime this year.

Fukui said he expected the core consumer price index (CPI) to continue rising steadily. It rose above the year-ago level for the first time in two years in November.

“Going forward, as the supply-demand gap narrows gradually and as downward pressure from unit labour costs eases, the trend for year-on-year rises in the core CPI should continue,” he told a quarterly meeting of the BoJ’s regional branch managers.

He reiterated the BOJ’s pledge to maintain its ultra-easy monetary policy until the core CPI index, which excludes volatile fresh food costs, shows a consistent rising trend.

The latest data showed the index rising 0.1 per cent in November. Economists expect the CPI inflation rate to gradually rise in the coming months, prompting the BoJ to shift policy in the April-June quarter.

The regional BoJ branch managers’ reports showed that even laggards like Hokkaido, the northernmost main island, described its economy as recovering.

All nine branches upgraded their economic assessments. The BoJ said in a summary that output was strong across the board and capital spending was rising in all regions.

A separate government survey on Friday of Japanese service sector workers, called “economy watchers” for their proximity to consumer and retail trends, also showed that the recovery was continuing to spread beyond the manufacturing sector.

The survey for December produced a diffusion index of 55.7, up from 52.9 in November. The impact from unusually chilly weather and heavy snowfall was mixed, with some respondents citing good sales of coats and heaters and others citing a drop in customers.—Reuters