Thursday, January 15, 2009

Japan logs worst-ever fall in machinery orders

Channelnewsasia in Singapore reported today that Japan is experiencing a record rapid decline in machinery orders and things are not forecasted to be rosy in future either. This will surely impact the business however our view is that the bilateral trade is so small that there may not be a significant impact on the outsourcing to India. However we must all brace ourselves for a tough time ahead. Editor

TOKYO: Japanese machinery orders plunged at the fastest pace on record in November as companies slashed investment to cope with the deepening recession, official figures showed Thursday.

The slump took economists by surprise and added to the gloom surrounding Asia's biggest economy, which has been hit hard by a slump in exports.

Core machinery orders, a leading indicator of corporate capital spending, fell 16.2 per cent in November from the previous month, the steepest fall since comparable records began in 1987, the government said.

The figures "showed clearly that corporate sentiment is worsening rapidly," said Resona Research Institute economist Hideyuki Araki.

"Companies are slamming the brakes on production and capital investment, sending (the economy) into a state of freefall," he said.

Market forecasts had been for a drop of 7.5 per cent, after a 4.4 per cent decline in October.

The grim figures reinforced fears that Japan's recession deepened in the fourth quarter of last year as the global economic crisis escalated.

"The economy is worsening so quickly that even economists cannot assess it properly," Daiwa Institute of research economist Hiroshi Watanabe said.

"As exports are falling, inventory stockpiles are increasing, prompting companies to curb production. They can't spend in this climate," he said, predicting further falls in orders.

Orders by manufacturers dived a record 33.2 per cent in November amid weak demand from export-oriented companies such as car and electronics makers. Orders by non-manufacturers rose 0.5 per cent. Foreign demand fell 14.4 per cent.

"Capital spending is plunging, mainly among export companies which are facing losses," said Naoki Murakami, chief economist at Monex Securities.

The report contributed to the gloomy mood on the Asian stock markets.

Tokyo's Nikkei index was down more than five per cent in afternoon trade.

Business investment had until recently been a key driver of a recovery in Japan's economy from recession in the 1990s, as Japanese companies expanded their global production facilities to meet brisk demand.

But with consumers tightening their belts worldwide amid a wave of layoffs, Japanese companies such as Toyota and Sony are now looking to reduce their spending on new plants and equipment to ride out the crisis.

Last month Toyota Motor predicted its first ever annual operating loss, and the Yomiuri newspaper reported Thursday that Nissan Motor also expects to post an operating loss in the current financial year to March.

The rapidly deteriorating economy is a major headache for Japan's Prime Minister Taro Aso, who is facing dwindling public support.

The ruling coalition forced an extra budget to fight the recession through the powerful lower house of parliament this week, despite objections from some lawmakers in both the ruling and opposition parties.

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