Japan Machinery Orders Jump 14.8%

By Eleanor Warnock - Jan 16, 2012 10:22 AM GMT+0700

Japan’s machinery orders rebounded in November, signaling that companies are willing to invest even as the yen remains strong and the global economy slows.

Bookings, an indicator of future capital spending, rose 15 percent in November from a month earlier, the Cabinet Office said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 5.1 percent increase.

Weak overseas demand and gains in the yen have cut profits at Japanese exporters from Nippon Steel Corp. (5401) to Panasonic Corp. The rebound in orders signals that the world’s third-largest economy is showing some resilience to the stronger currency and a slowing global economy.

“Strong November data comes as a relief, bolstering confidence in the expansionary capex trend,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo. Rebuilding from the March 11 earthquake means capital spending will be “resilient” in 2012, he said.

The yen reached a postwar record of 75.35 per dollar on Oct. 31. It traded at 76.84 against the dollar at 12:03 p.m. in Tokyo today and 97.15 against Europe’s shared currency after touching its highest since December 2000 earlier today. Standard & Poor’s downgraded France, Austria and seven other European nations last week.

Finance Minister Jun Azumi told reporters today that he was “concerned” about the euro’s decline, which has been “a bit rapid.” The region’s debt crisis “will be a big drag on global growth this year” unless policy makers come up with a “powerful” solution to keep the crisis from spreading, he said.

Order Volatility

The increase in machinery orders, which are volatile because they can be influenced by large one-off orders, was the biggest since January 2008, the government said.

“Until I see a sustained rise in orders for the next few months, I’m not ready to say I’m optimistic,” said Mari Iwashita, chief market economist at SMBC Nikko Securities Inc. in Tokyo.

A stalled economy could increase opposition to Prime Minister Yoshihiko Noda’s plan to double the nation’s sales tax by 2015. The opposition party and some members of the ruling party have said a tax hike could further cripple a rebound.

Authorities intervened in the currency market at least three times to weaken the yen last year, and the government compiled four extra budgets, worth about 20 trillion yen, measures that have not been enough to sustain an export-driven recovery.

Economic Contraction

The country’s economy may have contracted in the fourth quarter of 2011, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. Gross-domestic product contracted for two quarters before growing an annualized 5.6 percent in the three months through September. The Cabinet Office will release fourth-quarter GDP data next month.

Nippon Steel Corp., Japan’s largest steel manufacturer, reported on Oct. 26 that its profits declined by more than half in the third quarter of 2011 on slow demand in Asia. Panasonic Corp. (6752), Japan’s largest home-appliance manufacturer, has revised its forecast for the year through March 2012 to a loss of 420 billion yen, its largest in 10 years, due to appreciation of the yen and company restructuring.

To contact the reporter on this story: Eleanor Warnock in Tokyo at ewarnock@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net