Japanese Machinery Orders Slide 10.4%, Matching Record Decline

By Jason Clenfield

Nov. 10 (Bloomberg) -- Japanese machinery orders tumbled 10.4 percent last quarter, matching the biggest drop on record, as manufacturers cut investment plans in anticipation the global slowdown will stifle overseas demand.

The decline in orders, an indicator of capital spending in the next three to six months, matched a record drop set 10 years ago, the Cabinet Office said today in Tokyo.

Falling profit for Japan's exporters has driven the Nikkei 225 Stock Average down 44 percent this year and forced some of the country's biggest companies to cut costs. Toyota Motor Corp. last week forecast earnings will drop by almost 70 percent this fiscal year and said it plans to lay off workers and scale back investment.

``The deterioration in demand has become clearer and that's eroding companies' willingness to invest,'' said Yoshimasa Maruyama, a senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``We're going to see companies make deeper cuts.''

The yen traded at 99.21 per dollar at 9:57 a.m. in Tokyo, from 98.95 before the report was published.

On a monthly basis, orders for Japanese machinery rose 5.5 percent in September, an increase the government described as a ``weak rebound.'' The gains ended a three-month losing streak that was the worst since the country's 2001 recession.

Economists predicted a 5.2 percent rebound they said provided little relief amid an overall slowdown in corporate investment.

26-Year Low

The Bank of Japan, which last month cut its key interest rate to 0.3 percent after stocks fell to a 26-year low, forecasts that business spending will remain sluggish for the next several quarters. The slowdown in Japan's export markets and the 8 perent appreciation of the yen since October will create a ``severe'' earnings environment, the bank said.

The International Monetary Fund expects the economies of the U.S., Japan, and euro zone to shrink next year.

Governments and central banks are taking steps to spur demand. The U.S., Europe, South Korea and India have lowered borrowing costs in the past two weeks and China last night unveiled a $586 billion stimulus plan to prop up growth.

Toyota expects its earnings this fiscal year will be the lowest since 1999. President Katsuaki Watanabe, who started his career at the carmaker by cutting costs at the company cafeteria, said last week he'll head an emergency committee to trim spending and review the timing and scale of new projects. The company will also layoff 3,000 contract workers by the end of March.

Global Slowdown

Today's report is another sign the global slowdown has pulled the world's second-largest economy into a recession. Manufacturers said last month they plan to cut production in November. Economists say conditions may deteriorate in coming months after the U.S. economy suffered its biggest decline since 2001 in the third quarter.

``U.S. economic activity slowed significantly in September and October, which may affect Japan's exports,'' said Chotaro Morita, head of fixed-income strategy research at Barclays Capital in Tokyo. ``We will probably see the impact materializing from the November data.''

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