Japan machinery
Japan machineryReuters

Japan's core machinery orders rose at a slower-than-expected pace in December but companies expect orders to accelerate in January-March, an encouraging sign that industry is ready to increase spending.

Core orders, a highly volatile data series regarded as a leading indicator of capital spending, rose 4.2 percent in December, Cabinet Office data showed on Wednesday, less than the median estimate for a 4.7 percent month-on-month increase.

Companies expect orders to rise 8.6 percent in January-March, which would be faster than a 4.3 percent increase in the previous quarter, suggesting corporate Japan remains positive on the outlook for domestic demand.

The data is likely to be a source of relief for policymakers who are counting on capital expenditure to create more jobs and raise wages. However, if recent financial market turmoil continues, the change for big gains in business investment would diminish.

"These figures are not bad at all," said Shoji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"There are still some questions whether positive corporate sentiment will remain in place for the rest of the year, but for now companies are not turning cautious towards capital expenditure."

Compared with a year earlier, core orders in December fell 3.6 percent, against the median estimate of a 3.1 percent annual decline, the data showed on Wednesday.

Japan's capital expenditure unexpectedly rose 1.4 percent in the fourth quarter of last year, which was one bright spot in an otherwise disappointing reading on the health of the economy, data on Monday showed.

Capital expenditure gains would support the government's argument that it can create an economy driven by domestic demand.

Still, some economists remain worried that Japan's economy could weaken later this year if China's slowing economy or the U.S. Federal Reserve's monetary policy cause further turmoil in financial markets.