Believe what you want to believe: Japan’s machines are humming, or heading for trouble. There’s support for both points of view.

For months, Japan watchers have been waiting for business activity to drop. However, core machine orders, which typically point to future spending, have continued to rise, as have industrial output and capital spending. Machinery orders in April came in much stronger than economists expected.

So why the disconnect between sentiment and reality. The impact of the trade war, China’s economic slowdown and other usual suspects such as Brexit have dented optimism for manufacturers. Confidence among large Japanese businesses dropped between December and March, as trade war fear-mongering escalated, the last Tankan survey showed. (They remained generally optimistic.) In addition, some management teams have been reserved in their outlook in recent earnings calls. The reality of demand has so far belied the downbeat mood, though.

The rest comes down to the data you want to focus on. Indicators such as industrial production, inventories, shipments and capital expenditure are all over the place, depending on the sector. While factory output rose just under 1% in April from the previous month, transport equipment shipments jumped sharply. Inventory isn’t piling up. Capital spending as a portion of sales has been ticking up at capital goods companies like THK Co., Yaskawa Electric Corp., Nidec Corp. and Fanuc Corp. According to another survey, manufacturers are expecting production to grow strongly starting in May through the summer. The Topix Machinery index has gained 8.1% this year, outpacing a 3.1% increase for the broader Topix.

On the other hand, machinery orders from the private sector have dropped for some industries and spending plans overall are slightly lower than for previous fiscal years. An index that tracks economic uncertainty in Japan has been rising, and business negotiations are taking longer.

There are other factors to consider. It’s difficult to take the earnings guidance of Japan’s conservative companies at face value. Implementation of a potential consumption tax is skewing demand. And there’s the impact of U.S. tariffs on Chinese imports. These won’t necessarily cause Japanese companies to delay capex plans substantially, analysts at Nomura Holdings Inc. said.

So what’s the takeaway? There are no clear and obvious trend lines to follow yet, but there are pockets of growth that can only be found by following business cycles. It may be time to hunt around a bit.

To contact the author of this story: Anjani Trivedi at

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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