Japan's Machinery Orders Post Biggest Drop in Decade

Falling exports and slower business investment were factors in decrease

Japan's core machinery orders plunged at the fastest pace in a decade in the third quarter as the economy teetered on the verge of recession, official data showed on Nov. 10. The core private-sector orders, a leading indicator of corporate capital spending, tumbled 10.4% in the three months to September, the first quarterly drop in more than a year, the Cabinet Office said.

In the quarter to September, core orders by manufacturers fell 10.9%, while orders by non-manufacturers sank 12%. In September alone, orders rose a stronger-than-expected 5.5%, the first increase in four months, led by the electronics and chemicals sectors. The rise followed a 14.5% fall in August and was the strongest performance since May when the orders jumped 10.4%.

Machinery orders placed by the manufacturing sector in September rose 9.7% but orders by non-manufacturers slipped 1.3%, down for a fourth straight month. The slump matched a 10.4% drop seen in the second quarter of 1998, which was the steepest fall on record.

"We see no sign that the slowdown in machinery orders is bottoming out," said Naoki Murakami, chief economist at the Monex brokerage house. Falling exports and reduced business investment were behind the falling machinery orders, which reflect the Japanese economic slowdown, he said.

The core orders, which exclude particularly volatile demand from power companies and for ships, are expected to edge up 1.2% in the fourth quarter of 2008, according to the manufacturers' own forecasts.

"Capital investment looks virtually certain to stagnate through mid-2009," warned economists at Barclays Capital. "The weakness of machinery orders is spreading from overseas demand to domestic demand."

The Japanese economy, the second largest in the world, shrank in the second quarter of this year and a slew of gloomy data since then have reinforced fears of a prolonged downturn. Many analysts expect figures due next week to show the Japanese economy shrank for a second straight quarter in the three months to September, meeting the most common definition of a recession.

Japan's corporate sector has been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s. But companies are now cutting back their investment in new plant and equipment in response to the global financial crisis.

Copyright Agence France-Presse, 2008

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