Commenting on September's machinery orders report released from Japan on Wednesday, BNP Paribas said that a robust recovery in machinery orders was rather unlikely despite the strong showing in September, as Japanese producers are still remaining cautious.
Core machinery orders increased a seasonally adjusted 10.5% in September faster than the 0.5% increase in the previous month and well above expectations for 4.1% growth. On a yearly basis, core machinery orders dropped 22% in September, slower than the 26.5% decline in August, and smaller than the 26.2% drop expected by economists.
BNP Paribas said that the strong surge in machinery orders in September after moving sideways through the summer months must be credited to improvements in the financial environment and the subsiding of excessive pessimism. However, the firm opined that a continued robust recovery was unlikely due to unfavorable conditions with regards to capital spending.
"Despite the upturn in factory activity, most makers continue to operate at extremely low levels," said Hiroshi Shiraishi, an economist at BNP Paribas. "Given the fact that demand is largely rebounding on the back of the fiscal stimulus adopted by many nations, most producers are still more interested in reducing excessive capacity than in undertaking new investment."
Further, the strength of the yen is likely to encourage the overseas transfer of production operations to the detriment of spending on domestic plants and equipment, the firm said. The firm also expects appetite for investment among non-manufacturers to remain weak, owing to the continuing slump in domestic demand driven by the aggressive cost cutting measures undertaken by manufacturers.
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