Japan Machinery Orders Fall Less-Than-Expected 2.6%

By Jason Clenfield
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Aug. 7 (Bloomberg) -- Orders for Japanese machinery fell less than economists estimated in June, a sign that any recession in the world's second-largest economy may be mild.

Equipment orders, which signal capital spending in the next three to six months, declined 2.6 percent from May when they climbed 10.4 percent, the Cabinet Office said today in Tokyo. The median estimate of 39 economists surveyed by Bloomberg News was for a 9.9 percent drop.

Japanese companies aren't as vulnerable to a slowdown in demand as they were in previous recessions because over the past decade they cut debt, closed factories, laid off workers and expanded sales in developing markets. Still, falling exports and soaring energy and material costs have squeezed profits, compelling companies to cut production, investment and hiring.

``The current technical recession is completely different from previous ones,'' said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. ``Business investment is holding up surprisingly well.''

The yen traded at 109.41 per dollar as of 9:14 a.m. in Tokyo from 109.50 before the report was published. The Topix machinery index of shares fell 0.2 percent, less than a 0.7 percent decline in the benchmark Topix.

Companies plan to increase capital investment by 4.1 percent this fiscal year, according to a survey released this week by the Tokyo-based Development Bank of Japan. While that's slower than last year's 7.7 percent, it's better than the 10 percent decline recorded during the 2001 recession.

Demand for Workers

The Bank of Japan's most recent business survey showed labor demand is close to a 16-year high. The jobs-to-applicants ratio was at 0.91 in June, meaning almost every person who wants a job can get one. In 2001, there were two applicants competing for every position.

Still, Japan's economy probably shrank at an annual 2.3 percent rate in the second quarter, economists estimate a report will show Aug. 13. Exports fell in June for the first time since 2003 and household spending slid for a fourth month.

The economy is ``deteriorating,'' the government said yesterday, acknowledging for the first time that the country's longest postwar expansion has probably ended.

``The economy has entered a recession triggered by an export slowdown,'' said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc. in Tokyo. ``We expect the capital expenditure correction to continue as corporate revenue and earnings both begin declining.''

Toyota's Cutbacks

A Kyushu-based Toyota Motor Corp. subsidiary that builds sport-utility vehicles fired 800 workers since June because of falling demand for the vehicles in the U.S. Toyota says it will cut spending on research and development this year for first time since 2001.

Prime Minister Yasuo Fukuda last week replaced his economic ministers in a bid to boost his popularity, which has plummeted amid rising food and gas prices and a 13 percent slide in the Nikkei 225 Stock Average this year.

Finance Minister Bunmei Ibuki said this week the economy is at risk of falling into stagflation, a combination of slowing growth and spiraling prices. Economic and Fiscal Policy Minister Kaoru Yosano said on Aug. 4 that he plans to announce measures this month to help consumers and companies cope with rising energy costs.

``Whether we're in a technical recession or not isn't important to investors,'' said Nikko Citigroup's Murashima. ``The more important question is how deep and how protracted. I think this will be short and shallow.''

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net