Japan Machine Orders Fall to Record Low as Factories Sit Idle
Japanese machinery orders fell to a record low in July, signaling companies burdened with idle factories are wary that a rebound in global demand will last.
Orders, an indicator of capital spending in the next three to six months, plunged 9.3 percent from June to 665 billion yen ($7.2 billion), the lowest level since the survey began in 1987, the Cabinet Office said today in Tokyo. The decline was more the twice the 3.5 percent drop forecast by economists.
Consumer demand at home and abroad has yet to recover enough to spur investment by businesses. With more than a third of the country’s factory capacity still unused, companies including Toyota Motor Corp. are shutting assembly lines, not building them. Japanese stocks rose even after today’s report, as investors remained encouraged by signs of a global recovery.
“There’s been an enormous wave of confidence in the stock markets but that hasn’t been shared by business leaders,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “Producers know that lots of the improvement in exports and in the overall outlook has been on the back of government programs and they’re still troubled by the outlook.”
The Nikkei 225 Stock Average climbed 1.4 percent at 1:03 p.m. in Tokyo, extending its gains for the year to 18 percent following a rally in U.S. shares that saw indexes reach an 11- month high. The yen traded at 92.00 per dollar from 92.11 before the report was published.
Single Order
The decline in the machinery data was largely a reaction to a 9.7 percent jump in June that was driven by a single order for equipment used to generate nuclear power, the Cabinet Office said.
More than $2 trillion in government spending worldwide is helping pull the world economy out of recession. Japan’s gross domestic product grew at a 3.7 percent annual rate in the second quarter, the first expansion in more than a year, the government is expected to confirm tomorrow in revised figures.
Economists expect the rebound to lose momentum as the effect of the stimulus packages wanes, forcing the Democratic Party of Japan, which won national elections on Aug. 30, to contend with a weakening economy. Factory output rose the least in four months in July and the jobless rate surged to a record 5.7 percent.
Weak global demand for energy and raw materials pushed wholesale costs lower in August, a separate report showed today. Producer prices fell 8.5 percent from a year earlier, matching a record drop set the previous month, the Bank of Japan said.
Fading Stimulus
In the latest signs that the worldwide stimulus is losing effect, the Australian government said today that employment fell in August.
“Companies are pretty sure the worst is over, but they’re worried that demand is going to drop once the effects of the stimulus packages fade,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “It’ll be a long time before production recovers to last year’s level.”
Toyota, which estimates it will make about a third fewer cars this year than it has the capacity to build, said last month it will close an assembly line at its Takaoka plant in central Japan. The carmaker plans to cut capital spending by 36 percent in the year ending March 31.
Spending cuts by electronics makers are taking a toll on companies such as Ishii Hyoki Co., a Hiroshima-based producer of equipment used to make circuit boards. The company, which had forecast earnings of 579 million yen, said last week it’s now expecting a 393 million yen loss.
‘Isn’t Much Demand’
“Orders are down and at this point it’s hard to make a forecast,” said company spokesman Hironobu Seo. “Our customers are running below capacity, so there isn’t much demand for new equipment.”
Corporate cost cuts have also hurt Japan’s workers, darkening the outlook for retailers including Seven & I Holdings Co., which last month lowered its profit forecast and said it may close 20 supermarkets. Wages slumped 4.8 percent in July after an unprecedented 7 percent drop the previous month.
Orders by service companies dropped 2.8 percent, today’s report showed. Bookings by government agencies rose 25 percent.
Companies plan to cut capital spending 9.2 percent this fiscal year, a survey published last month by the Development Bank of Japan showed. Reductions by manufacturers will be the steepest since 1993. Business investment last year accounted for 15 percent of Japan’s economy.
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