•Japan Machinery Orders Unexpectedly Fall for Third Month as Profits Slide Sharply

Japan Machine Orders Unexpectedly Fall a Third Month (Update1)
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aw0dqAmNRukc

By Jason Clenfield and Tatsuo Ito


"I hate this f**king job. All I do is screw one bolt on after another after another, 18 hours a day, but damn, that tent city in Osaka is getting bigger by the day. F**k that noise."

July 8 (Bloomberg) -- Japanese machinery orders unexpectedly fell for a third month in May as sliding profits forced companies to cut spending on plant and equipment.

Bookings, an indicator of capital investment in the next three to six months, declined 3 percent from April, when they plunged 5.4 percent, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg was for a 2 percent increase.

Signs that the nation’s deepest postwar recession is moderating haven’t convinced companies that there will be a sustained revival in global demand. A Bank of Japan survey last week showed firms expect profits to slide 20 percent this year and companies including Toyota Motor Corp. are cutting investment, a driver of growth in past recoveries that made up 15 percent of gross domestic product last year.

“Capital spending is weak,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “A lot of companies are running somewhere near 50 percent of capacity. They’re hoping maybe they can boost that to 70 percent, but that’s still not a level that warrants new investment in plant and equipment.”

The current-account surplus, Japan’s broadest measure of trade, shrank 34.3 percent to 1.3 trillion yen ($13.8 billion) in May from a year earlier as exports tumbled 42.2 percent, the Ministry of Finance said today.

Stocks Fall

The yen traded at 94.67 per dollar as of 9:02 a.m. in Tokyo from 94.61 before the reports were published. The Nikkei 225 Stock Average opened 1 percent lower.

A drop in business spending is one of the reasons Japan’s recovery is forecast to lose momentum later this year. The world’s second-largest economy probably grew last quarter for the first time in a year, expanding at an annual 2.3 percent pace after a record 14.2 percent contraction in the first quarter, analysts say.

“The second-quarter GDP numbers are likely to be pretty strong, but with business and consumer spending weakening, there’s a good chance growth will slow after that,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.

The Bank of Japan’s Tankan survey of business confidence last week showed that companies plan to cut spending by a wider margin than three months ago. Large companies surveyed said they plan to slash spending by 9.4 percent this business year, more than the 6.6 percent drop they predicted in March.

Spending Plans

The projection, the worst in a June Tankan since comparable data were made available in 1983, stood out against a trend in which companies typically start the business year cautiously and report bigger investment plans as the year progresses.

“Corporate earnings have fallen very sharply,” RBS’s Nishioka said. “If companies thought production was going to return to last year’s levels, they’d be investing in new equipment. They’re not confident that’s going to happen, so they’re making do with what they have.”

Toyota, Japan’s largest automaker, is forecasting a second year of losses and is weighed down with factory capacity that exceeds sales forecasts by about 3.5 million vehicles. The company plans to slash spending 36 percent this year. Fitch Ratings last week lowered the company’s credit rating, saying it could take years for the automaker to regain the level of profitability it achieved before the global financial crisis.

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.
Last Updated: July 7, 2009 20:05 EDT

 

Green shoots?

 

In this case, that would be wasabi shoots. Not for the faint hearted!