Business

Editor: Bruce Meng
11 Sep 2008 09:53:15 GMT

TOKYO, Sept 11 - Japan’s core private-sector
machinery orders fell less than expected in July, although the
data did little to ease concern about the outlook for capital
spending as the nation heads into a recession.

The weak early snapshot of corporate outlays in the third
quarter comes as analysts forecast an even bigger economic
contraction than initially reported for the previous three
months.

Core machinery orders, a highly volatile figure regarded as a
leading gauge of capital spending in the world’s second-largest
economy, fell 3.9 percent in July from the previous month, a
smaller decline than a median market forecast of a 4.3 percent
drop.

That followed a 2.6 percent decline in June.

“Today’s report suggests that machinery orders, which have
shown relative firmness compared to other economic data, are now
weakening in line with slowing production, stemming from emerging
economic problems across the globe, combined with falling
profits,” said Tatsushi Shikano, senior economist, Mitsubishi UFJ
Securities.

Compared with a year earlier, core machinery orders in July
decreased 4.7 percent, against a consensus forecast of a 5.1
percent decline.

The Cabinet Office kept its assessment on machinery orders
unchanged, saying they were “weakening recently.”

Financial markets showed muted reaction to the data, which
did not alter much the dominant market view that the Bank of
Japan will hold off on raising interest rates from the current
0.5 percent until later next year.

Government officials say the economy, which shrank in the
second quarter at its sharpest rate in seven years, is either
heading into a recession or already in one, at least under a
Japanese definition of a downturn in the economic cycle.

The economy is expected to have contracted 0.8 percent in the
April-June quarter, a deeper decline than the government’s
initial reading of a 0.6 percent contraction, according to a
Reuters poll.

Revised gross domestic product data is due out at 8:50 a.m.
on Friday .

The weak reading in machinery orders underscored economists’
dim outlook for corporate capital spending.

“The latest data suggests that a slowdown in capital
investment is likely from the second half of fiscal 2008/09 to
the next business year as the data is a harbinger of capital
investment in six to nine months,” said Naoki Iizuka, senior
economist, Mizuho Securities.

“While the Japanese economy is widely seen to be in a
recession, capital investment is not deteriorating sharply and
chances of a trough in the economic cycle becoming much deeper
than expected are slim.”

Corporate capital spending has been a key driver of Japan’s
economy, whose longest post-war expansion has been a casualty of
slowing global growth and high energy prices.

The government forecast core machinery orders, which exclude
those for ships and equipment at electric power firms, to fall
3.0 percent in July-September after rising 0.6 percent in the
previous quarter.

The BOJ is widely expected to keep interest rates unchanged
when its policy board meets next week.