Japan’s Machinery Orders Slide, Bankruptcies Climb

By Jason Clenfield

Feb. 9 (Bloomberg) -- Orders for Japanese machinery fell for a third month in December and bankruptcies increased as businesses scrapped investment plans amid a collapse in exports and deteriorating earnings.

Bookings slid 1.7 percent from November, when they fell 16.2 percent, the sharpest drop since the survey started in 1987, the Cabinet Office said today in Tokyo. Corporate bankruptcies rose 15.8 percent to 1,360 cases in January, the eighth monthly increase, Tokyo Shoko Research Ltd. said in a separate report.

A wave of firings and canceled spending plans by Japanese manufacturers has heightened the risk of a prolonged recession, as fallout from the global slowdown ripples through the domestic economy. Nissan Motor Co., Japan’s third-largest automaker, said today that it will cut 20,000 jobs after predicting a loss this fiscal year as the global recession cripples car sales.

“Falling exports are forcing companies to cut jobs and earnings forecasts, so it’s not really the time to increase capital spending,” said Hirokata Kusaba, a senior economist at Mizuho Research Institute in Tokyo. “We’ll see a further slowdown in orders, which will be a big drag for the economy.”

The Nikkei 225 Stock Average fell 1.3 percent at the close in Tokyo. The yen traded at 91.19 per dollar at 3:38 p.m. from 92.13 before the machinery report was published. The currency’s 18 percent gain in the past year has compounded exporters’ woes by eroding the value of their sales made abroad.

Japan’s current-account surplus narrowed 92 percent in December as exports slumped, the Finance Ministry said today. Overseas shipments fell a record 35 percent, causing the surplus to shrink for a 10th month, the report said.

Record Decline

Economists predicted an 8.6 percent drop for monthly machinery orders, which signal capital spending in the next three to six months. Bookings slid 16.7 percent in the fourth quarter, a record decline.

Companies surveyed by the government said they expect bookings to increase 4.1 percent in three months ending March 31, a prediction that economists including Richard Jerram say is unrealistic.

“It seems highly unlikely to me,” said Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “Profits are going down so quickly.”

Manufacturers are likely to delay or halt investment in capacity because of the slump in demand, the Bank of Japan’s chief economist said today. The economy is deteriorating at a pace unseen in the past half century, Kazuo Momma, head of research and statistics at the central bank, said in a speech.

Nissan, Toyota

Automakers are bearing the brunt of the decline. Nissan expects a net loss of 265 billion yen ($2.9 billion) for the year ending March 31, compared with its October estimate of 160 billion yen in net income. Toyota Motor Corp. last week said its loss this fiscal year, the company’s first in seven decades, may be three times bigger than initially estimated.

The International Monetary Fund last month said Japan’s economy will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K. Gross domestic product probably shrank an annualized 11.7 percent last quarter, the worst contraction since the 1974 oil crisis, economists predict a government report will show next week.

The export slump is forcing manufacturers to fire thousands of workers. Panasonic Corp., Hitachi Ltd. and NEC Corp., all of which are forecasting losses for the current fiscal year, announced a combined 39,000 job cuts in the past two weeks.

Camera maker Nikon Corp. slashed its profit forecast by two thirds last week and said it will cut 800 jobs this quarter and scale back construction of a plant.

Rising Unemployment

Layoffs by manufacturers drove the unemployment rate to 4.4 percent in December from 3.9 percent the previous month, the biggest jump in 41 years. A separate report today showed an index of sentiment among Japanese merchants rose to 17.1 in January from a record low of 15.9 a month earlier.

Japan General Estate Co., a property developer, Nakamichi Machinery Co., a Japanese construction machinery trader and Marui Imai Inc., a department store operator, all went bankrupt in the past two weeks.

Borrowing costs for companies are rising as they struggle to raise funds amid a global credit crunch. Bank lending rose 4 percent in January from a year earlier, the central bank said today, as companies who can’t raise money in the markets turn to lenders for financing.

The Bank of Japan, having cut its key rate to 0.1 percent, is trying to spur lending by purchasing shares and corporate debt from banks.

“The funding problems will, unfortunately, continue to weigh on companies through fiscal 2009,” which begins April 1, said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “It’s unavoidable that an increase in bankruptcies and deteriorating profits will lead to higher credit costs.”

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