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Machine orders in Japan unexpectedly declined amid concerns about the strength of recovery
Thu, Jan 14 2010, 01:42 GMT
by ecPulse.com analysis team
Machine orders in Japan unexpectedly declined in November, indicating that companies still concerned about the strength of recovery, especially with some central banks around the world began thinking of exiting the exceptional policies adopted since the beginning of the crisis.
Machine orders in Japan declined 11.3% in November following a decline by 4.5%, and it came opposing analyst’s forecasts of an incline by 0.2%. Machine orders slipped 20.5% in November from a year earlier, compared with a previous drop by 21.0%, while it was expected to fall 10.1%.
Capitals spending still falling as companies are concerned about the strength of world demand in the absence of stimulus measurers. More than third of factory capacity in Japan sitting idle, as exports still relatively weak, and large manufacturers are sitting plans to cut costs through firing workers and keeping production frozen at certain levels till global demand show more clear signs of recovery.
However, capital spending declined 24.8% in the third quarter of 2009, following a drop by 21.7%.
On the other hand, industrial production rose 2.6% in November, while it is still 3.9% below last year’s levels. Manufacturing output rose alongside recovering exports that began showing more support for economic recovery, after the sever drop witnessed in the beginning of 2009, worth mentioning that shipments declined 7% in November from a year earlier, the smallest drop in 14 months.
Deflation risks continued to weigh on economic activity, having the annual consumer prices index continue to fall especially that commodities’ prices remain lower than high records recorded last year. Yet, the surging yen is worrying companies in Japan as it is corroding exports profits and making Japanese products lose a competitive advantage.
In order to fight deflation risks and help conditions in the business sector to improve, the government unveiled an additional stimulus plan in December. The government allocated 7.2 trillion yen last month to be added to the 25 trillion previously pumped into the market, hoping to support companies to overcome the negative effect of recession, besides fighting deflation and stopping the yen from rising against major currencies.
The government’s package includes 3.5 trillion yen to help regions, 600 billion yen for employment, in addition to 800 billion yen allocated for environmental initiatives. The government’s aids include 3 trillion yen in tax grants to local governments to make up for a revenue shortfall.
Yet, The Tankan large manufacturing index dropped 10.8% in the fourth quarter of last year following a decline by 13.8%, giving a pessimistic outlook for the upcoming six month. Tankan survey last month showed that 13.8% of large companies are planning to cut capital spending that makes us expect more declines for machine orders.