Japanese Machinery Orders Hit Record Low

Companies are slashing their investment in plants and equipment to cope with the global downturn.

Japanese machinery orders fell to the lowest level on record in May, data showed on July 8, dampening hopes of a quick economic recovery.

Japanese companies are slashing their investment in plants and equipment to cope with the global downturn, which has inflicted heavy losses on many firms, particularly car and electronics manufacturers.

Core orders showed a surprise fall of 3% in May from the previous month, to 668.2 billion yen (US$7.1 billion), the lowest level since comparable records began in 1987, the government said.

Core orders, which exclude volatile demand from power firms and for ships, are expected to fall 5% in the three months to June from the previous quarter, after a drop of 9.9% in January-March, the government said.

The orders, a closely watched gauge of planned business investment, have now fallen for three straight months.

Naoki Murakami, chief economist at Monex Securities, said the data threw cold water over the prospects for a swift Japanese economic recovery. "It reminds us of the risk that the pace of economic recovery may be very slow due to cutbacks in domestic capital spending by non-manufacturing and other companies," he said.

Before the current economic downturn began, Japan's corporate sector had been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s. But major Japanese companies plan to trim their investment in factories and equipment by 9.4% on average for the current fiscal year to March, the Bank of Japan's "Tankan" survey showed last week.

Another report released on July 8 highlighted the tough trade environment, with Japan's current account surplus shrinking a sharper-than-expected 34.3% in May from a year earlier to 1.30 trillion yen.

The current account, the broadest measure of trade with the rest of the world, worsened for a 15th straight month compared with a year earlier.

While hopes are mounting that the economy has come through the worst of its export and production slump, experts say there is a risk that a fledgling recovery will stall once the effects of government stimulus spending fades. Tokyo has unveiled a series of stimulus packages, including cash handouts for households and incentives to buy fuel-efficient cars.

Copyright Agence France-Presse, 2009

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