Japan machinery orders lowest in 2 years.

Reprinted from Channel News Asia

TOKYO, 9 October 2008 : Japan's core machinery orders plunged at the fastest pace in two years, the government said Thursday 9 October 2008, reinforcing fears that Asia's largest economy has slipped into a recession.

The core private-sector machinery orders, a leading indicator of corporate capital spending, slumped 14.5 per cent in August 2008 from the previous month, falling for a third straight month, the Cabinet Office said.

It was the steepest fall since a 15.9 per cent drop in July 2006 and worse than the market's average forecast for a fall of around 3.6 per cent.

"Companies are growing cautious about capital spending as their business outlooks are worsening," noted Naoki Murakami, chief economist at online securities firm Monex.

"The US economy will not bottom out at least until mid-2009. Japan, which cannot move to ease credit by itself, will continue to depend on the US and world economies," he said.

"Investment on plants and equipment will likely slow, particularly among manufacturers, as exports plunge due to economic slowdowns in emerging countries," Murakami said.

Major central banks in the United States, Europe and Canada cut interest rates Wednesday in a joint effort to ease a global credit squeeze. China also reduced borrowing costs, but the Bank of Japan did not participate as its benchmark rate is already low at 0.5 per cent.

Machinery orders placed by the manufacturing sector in August tumbled 13.9 per cent from the previous month. Orders by non-manufacturers were down 14.9 per cent, the Cabinet Office said.

But it was "unlikely that such a sharp fall as in August will continue" given buoyant investment in research and development, said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.

"Due to the turmoil in financial markets, however, there is no doubt that companies are growing cautious," he said in a report.

Hiroshi Watanabe, economist at Daiwa Institute of Research, noted orders placed by the electrical machinery and automobile industries fell sharply, showing "capital investment by export industries will likely drop ahead."

The International Monetary Fund said Wednesday that Japan's economic downturn was expected to be longer and more severe than previously thought, slashing its forecasts for the world's second-largest economy.

Japan's economy will grow by just 0.7 per cent this year, down from a previous projection of 1.5 per cent and much slower than last year's 2.1 per cent expansion, the IMF said.

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