JAPANESE core machinery orders surged in March and firms expect orders to rise in the current quarter in a sign capital spending is picking up, backing the central bank’s conviction that the economy can weather the impact of last month’s sales tax hike.

    The record 19.1 percent month-on-month rise in core orders, a leading indicator of capital spending in the coming six to nine months, blew past a 6-percent gain forecast by economists in a Reuters poll.

    Companies surveyed by the Cabinet Office forecast that core orders will rise 0.4 percent in April-June from the previous quarter, which would mark the fifth straight quarter of gains. In January-March, core orders rose 4.2 percent, the data showed yesterday.

    The readings bode well for the Bank of Japan’s (BOJ) argument that the economy can weather the tax hike, likely easing pressure for fresh monetary stimulus.

    The BOJ is set to stick to its upbeat view of the economy at its policy review this week and may raise its view on capital expenditure, suggesting that no immediate expansion of monetary stimulus is forthcoming.

    The Cabinet Office data comes on the heels of the Reuters Tankan survey which showed business morale slid in May but is seen improving in the months ahead, providing evidence that the pain from the April 1 tax rise will likely be short-lived.

    Capital spending — long a weak link in Japan — is key to negotiating a temporary dip in the world’s third largest economy after the sales tax rose to 8 percent from 5 percent April 1.

    Tepid exports growth has already raised concerns among analysts about the risks to the growth outlook as policymakers seek to safeguard a recovery.

    “Higher corporate profits and easing of excess production capacity are likely to keep capital spending in uptrend ahead,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.(SD-Agencies)