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Japan weak machinery orders, services outlook raises recession risk
November 8, 2012 / 6:12 AM / 5 years ago

Japan weak machinery orders, services outlook raises recession risk

TOKYO (Reuters) - Japan’s core machinery orders plunged more than expected in September in another sign that the world’s third-largest economy was slipping into recession, dragged down by a slowing global economy, tensions with China and weakening domestic demand.

Nissan Motor's Iwaki factory is seen in Iwaki, about 50km (31 miles) from the crippled Fukushima Daiichi nuclear power plant, Fukushima prefecture May 17, 2011. REUTERS/Chang-Ran Kim

The nation’s current account surplus, the broad measure of its trade and other flows, also fell more than forecast, following a sharp drop in exports.

Core machinery orders, seen as a leading indicator of capital spending in the coming six to nine months, fell 4.3 percent in September compared with a median forecast of a 1.8 percent decline and a 3.3 percent drop in August, government data showed on Thursday.

The data are the latest in a string of gloomy statistics reflecting the pain inflicted on the economy by the slowdown in China, Japan’s top export market, compounded by a wave of anti-Japanese sentiment triggered by a territorial dispute.

With the effect of rebuilding from last year’s earthquake and tsunami fading, the government acknowledged earlier this week that its index of leading indicators gauge fell to a level suggesting the onset of a recession.

Manufacturers surveyed by the Cabinet Office have forecast that core orders will rise 5.0 percent in October-December after falling 1.1 percent in the previous quarter.

But Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo, said that may be too optimistic and mounting evidence of economic weakness will keep the Bank of Japan under pressure to deliver more monetary stimulus.

“Manufacturers expect machinery orders to rise 5 percent in October-December, but given weakness in external demand, that may be tough to achieve as capital spending will weaken toward the year-end,” Minami said.

“Japan’s economy likely slipped into recession earlier this year and will gradually weaken for the time being. That means prospects of further monetary easing in December will persist.”

Separate data showed on Thursday the nation’s October service sector sentiment hit the lowest since May 2011 hurt by the Japan-China territorial spat and deepening worries about the economic outlook.

As a result, the government cut views on the index for the second straight month saying “the economy is weakening further.”

Last week, the central bank boosted its monetary stimulus for the second month in a row and for the fourth time this year, and combined it with an unprecedented joint statement in which the government pledged continued efforts to end deflation.

Economists polled by Reuters last week estimated the economy contracted 0.9 percent in the third quarter after September exports and production suffered their sharpest declines since the aftermath of the March 2011 earthquake and tsunami.

Compared with a year earlier, core orders fell 7.8 percent in September.

Separate government data showed the nation’s current account surplus fell nearly 69 percent in September from a year earlier and stood at 503.6 billion yen ($6.3 billion), against a median forecast for 774.5 b billion yen.

In seasonally adjusted terms, the current account logged a 142 billion yen deficit, the first shortfall since such calculations began in 1996.

Japan’s economy outperformed most of its Group of Seven peers in the first half of this year on robust spending by consumers and reconstruction after last year’s earthquake and tsunami. But weak external demand and a strong yen have led analysts to project that growth will stall for the rest of this year.

Additional reporting by Leika Kihara; Writing by Tomasz Janowski; Editing by Ken Wills and Jacqueline Wong

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