Japan core machinery orders jump more than expected

Workers in a factory
Image caption There have been fears that some manufacturers may shift production out of Japan

Japan's economic recovery has received a boost as core machinery orders, a key indicator of capital expenditure, rose more than expected in January.

Orders rose 3.4% from the previous month, up from a 7.1% decline in December,latest data showed.

There have been fears that some manufacturers might shift production out of Japan in the wake of weak domestic demand and a strong yen.

Last month, Japan reported a 2% jump in factory output in January.

Analysts said that as the economy continues to recover from last year's natural disasters, businesses were feeling more optimistic about growth prospects.

As a reslut they are expanding their operations and purchasing new machinery.

"With the economy picking up, capital expenditure will gradually recover. The economy is already emerging from a lull," said Hiroshi Shiraishi of BNP Paribas in Tokyo.

'Moderate recovery'

Japanese manufacturers have had to endure tough times in the past twelve months with a variety of problems hurting their growth.

The earthquake and tsunami in March last year caused widespread destruction which disrupted the country's supply chain, hampering production at many of the country's leading manufacturers.

At the same time, economic issues in Japan's key markets such as the eurozone and the US saw economic growth slowing, hurting demand for Japanese goods.

To make matters worse, the Japanese currency, the yen, also strengthened against the US Dollar during the period.

A strong yen not only makes Japanese goods more expensive to foreign buyers but also hurts profits of firms when they repatriate their foreign earnings.

The yen rose 11% against the US Dollar between April and October last year. It has since weakened after interventions by the Japanese central bank.

It was trading close to 82.36 yen against a US dollar in Asian trade on Monday, down from 75.75 yen in October last year.

Analysts said that the recovery in Japan's economy coupled with the yen's weakness was boosting morale among businesses.

"As reconstruction shifts to a higher gear, corporate capital spending is expected to pick up in April-June this year," said Junko Nishioka of RBS Securities.

"As the yen has eased and corporate profits are expected to recover, the economy is likely to maintain a moderate recovery."