Japan Machinery Orders Dive as Recession Looms

Japan's core private-sector machinery orders tumbled 14.5 percent in August, four times more than expected, in a bad sign for capital spending as the nation's economy spirals toward a recession.

CNBC.com

Tokyo stock prices failed to gain ground despite Wednesday's joint interest rate cuts by central banks around the world, with worries about the financial crisis and global economy dominating.

A day after the Nikkei plunged 9 percent, Japanese Prime Minister Taro Aso instructed senior ruling party officials to consider a new emergency package to cope with the global financial uncertainty, Kyodo news agency reported.

The early snapshot of corporate outlays comes on mounting fears that the deepening turmoil could deal a serious blow to the world economy, hit Japanese exports and further weaken corporate activity.

"It's quite a big negative surprise. It suggests that capital expenditure could fall further ahead. If so, that would have a significant negative impact on Japan's economy," said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.

"There is a chance Japan's economy may contract again toward the end of this year and early next year. In this market environment, corporate revenues and sentiment could worsen further," he said.

The decline in core machinery orders, a highly volatile data series, was much bigger than a median market forecast of a 3.5 percent drop and marked the third straight month of decreases.

Government officials acknowledge Japan's economy is either heading toward a recession or already in one.

Japan defines a recession as a downturn in the economic cycle, which varies from the more widely used definition of two straight quarters of economic contraction.

The government downgraded its assessment of machinery orders for the first time in five months, saying they were falling.

Manufacturers surveyed by the government forecast orders to fall 3.0 percent in the July-September quarter.

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The Nikkei 225 Average was down 0.4 percent at 9,167.01.

Investors are looking to see if Asian central banks will follow the lead of major central banks in coordinated interest rate cuts, aimed at boosting confidence in financial markets suffering through the worst crisis since the 1930s.

China joined the Federal Reserve, European Central Bank, Bank of England, Bank of Canada and others to cut rates on Wednesday. The Bank of Japan welcomed the moved but did not join because it said rates are already accommodative at 0.5 percent.

The Bank of Japan on Tuesday kept its overnight call rate target unchanged as widely expected, but signaled it has grown more cautious about Japan's economic recovery and the market upheaval that threatens to rupture the global financial system.

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