Japan's machinery orders slump

Japan's core machinery orders fell much faster than expected in October, suggesting firms are slashing capital spending as a deepening eurozone debt crisis and yen strength cast a pall over the economy's tentative recovery. Core machinery orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, slumped 6.9 percent in October from the previous month, government data showed on Thursday.
The fall compared with a median market forecast for a 0.5 percent drop and follows an 8.2 percent slump in September, leaving orders just 1.5 percent above year ago levels. While Japan has pulled out of a recession triggered by the March earthquake, a slump in exports and business sentiment, plus Thursday's machinery orders data add to growing signs of malaise in the world's third-biggest economy.
"Machinery orders won't continue to fall but instead are likely to stagnate. We won't have a recession. However, growth is likely to be very slow," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co. Core orders fell below 700 billion yen ($9 billion) for the first time this year. Corporate spending has been struggling to recover to levels seen before the 2008 collapse of Lehman Brothers, which triggered the last global financial crisis.
"Machinery orders are flattening as uncertainty has heightened since the summer due to Europe's debt crisis, US slowdown and the yen's rise," a government official said. Underlining sluggish business expenditure, Japanese bank lending rose a meagre 0.2 percent in November from a year earlier, posting the first annual gain in two years.
Companies surveyed by the Cabinet Office last month forecast that core machinery orders will fall 3.8 percent in October-December, after increasing 1.5 percent in the previous quarter, and the latest data reinforce such a scenario. The Bank of Japan loosened monetary policy in October to ease the pain from yen rises and global uncertainty, and has expressed its readiness to act again if risks to Japan's recovery materialise. The board next meets for a policy review on December 20-21.