By Lisa Twaronite
Japanese markets remained bullish Thursday, discounting new
government data pointing to weakness in capital spending, as
investors instead showed continued hope that an economic recovery
is on track.
The Cabinet Office said Japanese core machinery orders,
considered a leading indicator of capital outlays, fell 9.3% in
July from June, a deeper drop than the 3.6% average decrease
expected by economists surveyed by Nikkei and Dow Jones
Newswires.
But the notoriously volatile data set failed to derail the
benchmark Nikkei 225 Stock Average's rally. The Nikkei was up 1.6%
in early afternoon trading, and the broader Topix index of all
issues on the Tokyo Stock Exchange's First Section was up 1.8%.
Banking shares were among gainers, with Mitsubishi UFJ Financial
Group Inc.(MTU) up 3.2%, Mizuho Financial Group Inc.(MFG) up 3.0%
and Sumitomo Mitsui Financial Group Inc. (SMFJY) up 2.8%.
Those gains were helped by a broad regional rally, with South
Korea's Kospi up 1.5%, Australia's S&P/ASX 200 rising 0.6%, and
Hong Kong's Hang Seng Index ahead by 1.4%.
Richard Jerram, chief economist at Macquarie Securities in
Tokyo, that despite its status in tipping future growth or
contraction, the machinery orders figure, by itself, should not be
seen as a predictor of the economy's direction.
"Machinery orders is a series where it is important to
understand the underlying dynamics and not become too excited or
depressed by a single number," Jerram said in a report
Thursday.
He cited last month's 9.7% on-month increase in June orders,
which came in about 7 percentage points ahead of expectations,
while the 9.3% on-month drop for July in the latest report came in
about 6 percentage points below.
"All this really tells us is that the margin for error is wide
on this lumpy and naturally volatile series, making it all the more
important to cross-reference other leading indicators of capital
spending," he said.
Many investors have a problem with the idea that capital
spending begins to improve when there is still excess capacity in
the system, he said, but this situation "is invariably the
case."
The early stages of a recovery cycle "are driven by new
technologies or emerging areas of demand, as well as by replacement
capex that had perhaps been delayed due to uncertainties," he said.
"Rising cash flows and profitability give firms the funds to
invest, as well as the expectations of positive returns on the
spending."
A separate set of data from the Bank of Japan showed pressure on
wholesale prices remains, with the corporate goods price index for
August dropping 8.5% from a year earlier, slightly more than the
8.4% expected by economists surveyed by Reuters.
The index fell 8.5% on year in July, which was the biggest
decline on record.
