Bloomberg News

Japan Machine Orders Rise, Signaling Investment May Recover

October 11, 2011

(Updates with Keidanren meeting in seventh paragraph.)

Oct. 12 (Bloomberg) -- Japan’s machinery orders rebounded in August on demand for electrical products, signaling that companies are willing to invest even as global economic growth slows and the yen stays near post-World War II highs.

Bookings rose 11 percent in August from July, the fastest increase in a year, the Cabinet Office said in Tokyo today. The indicator of capital spending in three to six months was projected to increase 3.9 percent, according to the median forecast of 31 economists surveyed by Bloomberg News. Orders fell 8.2 percent in July from June.

Today’s report contrasts with data last month that undershot economist forecasts, including exports, industrial output and retail sales. A yen appreciation that Nissan Motor Co. chief executive officer Carlos Ghosn said last week may cause a “hollowing out” of Japan’s industrial base also threatens to derail a rebound in the nation’s economy.

“This is a relief as we thought investment may have begun plunging with uncertainties about Europe and the U.S. growing,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo and a former Bank of Japan official. Still, “today’s gain doesn’t guarantee sustainable capital spending ahead,” he said.

Helping push up overall orders were a 29.5 percent increase in demand for electrical machinery in August from July and a 74.6 percent jump in orders for information technology-related machinery, according to the Cabinet Office.

Yen’s Advance

Japan’s currency, which has risen 5.7 percent so far this year against the dollar, touched a postwar high of 75.95 on Aug. 19. The yen traded at 76.72 per dollar at 11:45 a.m. in Tokyo, little changed from the level before the report.

Officials of Japan’s biggest business lobby, Nippon Keidanren, told Finance Minister Jun Azumi in a Tokyo meeting today that the strong yen is a problem without specifically discussing steps to stem its gains, said Mitsuo Mitani, a parliamentary secretary at the ministry. Mitani spoke to reporters after attending a meeting between Azumi and Keidanren officials including Chairman Hiromasa Yonekura.

Large companies plan to increase capital spending 3 percent in the year ending March 2012, less than economist forecasts for a 4.3 percent advance, the Bank of Japan’s Tankan report showed last week.

Goldman Sachs Group Inc. cut its forecast for Japan’s real economic growth during this fiscal year to 0.1 percent from 0.2 percent due to a slowdown in global expansion, it said this month.

“I expect Japan’s economy will have a big slowdown” after this quarter, said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo, said before the report.

To keep the recovery going, Prime Minister Yoshihiko Noda’s government is implementing measures to cope with the yen’s gains, including subsidies for companies. The ruling Democratic Party of Japan has proposed a 12 trillion yen ($156 billion) stimulus package to support the economy.

--Editors: Ken McCallum, Kyung Bok Cho

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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