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Japan's February machinery orders rise in sign of business resilience

Japan’s core machinery orders unexpectedly rose in February, suggesting business investment remained resilient even as companies braced for a major jolt to demand from the coronavirus pandemic.

Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 2.3% in February from the previous month, Cabinet Office data showed on Wednesday.

The rise followed a 2.9% gain in January and was better than a 2.7% decline predicted by economists in a Reuters poll.

Many analysts expect the global economy to slip into recession due to the widening impact from the pandemic, which has already triggered financial market turmoil in recent weeks as investors brace for a sharp contraction.

Analysts expect the hit to consumption from the coronavirus to worsen in coming months after Prime Minister Shinzo Abe declared a state of emergency on Tuesday that is seen paralyzing activity in major cities.

“Given that other activity indicators and the manufacturing surveys held up well, the resilience of machinery orders in February is not a surprise,” said Capital Economics Japan Economist Tom Learmouth.

“A sharp downturn is in the pipeline though, which should partly be reflected in the March data. We’re forecasting a 3% quarter-on-quarter fall in non-residential investment this quarter.”

Abe unveiled a stimulus package of almost $1 trillion on Tuesday that includes 39.5 trillion yen ($363 billion) in direct fiscal spending, largely to offset the immediate damage from the pandemic.

Japanese business confidence soured to a seven-year low in the quarter through March, a Bank of Japan (BOJ) survey showed last week, as the pandemic hit sectors from hotels to car makers.

By sector, manufacturers’ orders edged down 1.7%, weighed by chemicals, while core orders from the service-sector rose 5.0%, led by gains in the transport and postal business.

The BOJ is set to hold its next meeting in three weeks after easing monetary policy last month by pledging to buy exchange-traded funds at double the current pace, joining global central banks in fighting the pain from the pandemic.

Analysts see Japan’s economy, which shrank in the final quarter of last year, contracting over the following two quarters as the pandemic worsens.

From a year earlier, core machinery orders were down 2.4% in February, largely in line with a 2.9% decline seen by economists in a Reuters poll and after a 0.3% fall in January.

© Thomson Reuters 2020.

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