Japan Machine Orders Fall 4.4% as Recession Deepens

By Jason Clenfield

Dec. 10 (Bloomberg) -- Japanese machinery orders fell in October as the deepening global recession choked off demand for the country’s cars and electronics.

Orders, an indicator of capital spending in the next three to six months, slid 4.4 percent from September, when they rose 5.5 percent, the Cabinet Office said today in Tokyo. Bookings received from abroad, which are excluded from the headline figures, tumbled 37 percent, the biggest drop in five years.

Falling profit for Japan’s exporters has driven the Topix stock index down 44 percent this year and forced the country’s biggest companies to slash production, fire workers and cut spending. Sony Corp. said yesterday it will eliminate 16,000 jobs and reduce capital investment in its electronics business by 30 percent over the next two years.

“It’s inevitable that business investment will keep falling because the drop in overseas demand is so huge,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. “The reduction in investment and jobs will make Japan’s recession very deep and prolonged.”

The Topix index of machinery makers lost 0.3 percent as of 10:41 a.m. in Tokyo, compared with a 0.3 percent increase in the benchmark stock gauge. Komatsu Ltd. and Mitsubishi Heavy Industries Ltd. led the declines.

The yen traded at 92.50 per dollar from 92.24 before the report. Japan’s currency has climbed 15 percent since September, compounding exporters’ woes by eroding the value of their earnings made abroad.

Shrinking Economy

The world’s second-largest economy shrank at an annual 1.8 percent pace last quarter, a report showed yesterday, as businesses cut spending and inventories. The recession has since deepened: in October, exports fell at the fastest pace in seven years, production slumped, job prospects fell to a four-year low and household spending tumbled for an eighth month.

Morgan Stanley today cut its outlook for Japan, saying gross domestic product will shrink 2 percent next year, matching the country’s “postwar nadir” of 1998. The impact of the global financial crisis on the economy “is worse than we envisaged,” said Takehiro Sato, chief Japan economist at Morgan in Tokyo.

The Bank of Japan’s quarterly Tankan survey next week will show sentiment among large manufacturers fell the most in 34 years, according to economists surveyed by Bloomberg.

“Japan’s economy is in far worse shape than feared,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “The contraction in capital spending is therefore likely to be particularly severe in the fourth quarter.”

Tool Orders Plunge

The monthly drop in orders was in line with economists’ estimates for a 3.9 percent decrease. Year on year, orders tumbled 15.5 percent, the steepest decline since June 2007.

November bookings for machine tools slid the most in at least 21 years, plunging 62 percent from a year earlier, the Machine Tool Builders Association said yesterday.

Mitsubishi Chemical Holdings Corp. will cut equipment investment 27 percent to 430 billion yen ($4.6 billion) by March 2011, the Tokyo-based company said yesterday.

The Bank of Japan forecasts business investment will stay sluggish for the next several quarters. The central bank cut its benchmark interest rate to 0.3 percent in October, the first reduction in seven years, and some economists predict a return to zero rates in coming months.

“Monetary policy will take on more of the character of fiscal policy, under pressure from the markets,” said Morgan Stanley’s Sato. “We envisage two further rate cuts to get us back to the zero interest-rate policy” by March, he said.

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