×

Japan Machinery Orders Fall, Loan Growth Slows

Machinery orders at Japanese firms fell more than expected in February from the previous month, data showed on Wednesday, but did little to change the view that the strength in corporate investment remains firm.

Core private-sector machinery orders, a key gauge of corporate capital spending in the coming six to nine months, fell 5.2% in February from January.

"(The machinery orders data) is weaker than expected, but this alone does not mean that capital spending will falter. It is a volatile series, and we don't have to change our view on firm capital spending," said Kiichi Murashima, an economist at Nikko Citigroup.

The figure was below economists' median forecast for a 0.2 percent fall, and followed a 3.9% rise in January, which was the biggest gain since last August when orders jumped 6.7%. The market reacted little to the data as it didn't alter the general view that the Bank of Japan will raise interest rates gradually as it has said it would do after lifting them to a decade-high
0.5% in February.

The central bank kept rates on hold at its policy board meeting on Tuesday, following its previous meeting in March.

Given the latest weak round of inflation data, market participants expect the BOJ to wait until the second half of the year for the next rate hike.

On a year-on-year basis, core orders, which exclude those for ships and machinery at electric power firms, fell 4.2%, against a 0.9% rise forecast in a Reuters poll.

A Cabinet Office official attributed the fall in February to drops in electronics machinery such as semiconductor production systems due to inventory adjustments in the information-technology sector.

Nevertheless, the Cabinet Office maintained its assessment of the data, a highly volatile series, for the fifth straight month, saying growth in machinery orders is seasawing.

A survey by the Cabinet Office has shown manufacturers forecast 2.2% growth in orders in January-March from the previous quarter. In October-December, orders increased by 2.0%.

Brisk corporate activity, a major engine of the current economic recovery supported by firm exports, was underlined by recent data such as the BOJ's March tankan corporate survey.

The tankan showed earlier this month big firms expect their capital spending to rise 2.9% in fiscal 2007/08, the biggest planned increase for a March tankan since fiscal 1990/91.

Separate government data showed on Wednesday that Japan's current account surplus rose 4.9% in February from the same month a year earlier to 2.4175 trillion yen ($20.31 billion) thanks in part to solid Japanese exports.

Additional data from the BOJ showed that the balance of outstanding loans held by most Japanese banks rose 1.0% in March from a year earlier to 452.9628 trillion yen, reflecting a steady corporate appetite for funds. The rate of year-on-year growth slowed from 1.3% in February.

The data also showed that lending by banks, including "shinkin" credit unions, rose 1.4% in fiscal 2006/07, which was first rise since the BOJ began taking relevant data in fiscal 2001/02.

Another set of BOJ data showed that Japan's most widely watched measure of money supply -- M2 plus certificates of deposit (CDs) -- rose 1.1% in March from a year earlier, compared with the median forecast of a 1.2% increase in a Reuters poll.