Japan Core Machinery Orders Surge 8.7%, Exports Beat in May

Japan's core machinery orders jumped 8.7% in April from March, more than ten times the 0.9% increase economists had expected. The Cabinet Office data reversed a 9.4% decline in March. On the year, orders rose 15.6%, above the 9.3% consensus. The figures are a key proxy for capital spending.

Separate trade numbers for May showed exports rising 17.0% from a year earlier, beating the 16.2% forecast and accelerating from April's 14.8% pace. Shipments to Asia jumped 19.5%, led by a 17.9% gain to China. Exports to the EU rose 14.5% and those to the US increased 12.5%. Imports climbed 12.5% year-over-year, slightly below the 12.8% expected but faster than the prior month's 9.7%. The trade deficit came in at ¥378.7 billion, narrower than the ¥564.6 billion economists had penciled in. The balance swung from a surplus of ¥301.9 billion in April.

The data arrive as the Bank of Japan prepares for its July 30-31 policy meeting. The board will release updated growth and inflation forecasts. Strong machinery orders and export growth give the board more cover to normalize policy further. The yen's recent weakness has fed into import costs and inflation. Core machinery orders are a leading indicator for business investment, a soft spot the BOJ has flagged in previous statements. The BOJ raised its policy rate in March for the first time in 17 years. The strong data support the case for another hike as early as July.