Machinery Orders Unexpectedly Fall in November as Companies Pare Spending

Japanese machinery orders unexpectedly fell in November, signaling that companies are reluctant to increase spending on factories and equipment because of concern about the strong yen’s effect.

Factory orders fell 3 percent from October, when they dropped 1.4 percent, the Cabinet Office said today in Tokyo. Orders, an indicator of capital spending in three to six months, were projected to rise 2 percent, according to the median forecast of 29 economists surveyed by Bloomberg News. It was the third monthly decline.

Today’s report may fuel concern the recovery is slowing as the government stimulus effects wane and the yen’s gain threatens exporter profits. The government lowered its assessment of machinery orders for the first time in a year, citing weakness in non-manufacturing.

“Companies continue to be cautious about making new investment because the outlook for economic growth remains uncertain and they are still saddled with excess capacity,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo.

The yen traded at 83.09 per dollar at 10:17 a.m. in Tokyo, little changed before the report was published. The Japanese currency, which retreated from a 15-year high of 80.22 reached on Nov. 1, has still gained about 3 percent since authorities tried to stem the yen’s advance by intervening in currency markets on Sept. 15.

Cut Assessment

Toyota Motor Corp. President Akio Toyoda said this week that the world’s largest automaker is “challenging” itself “to produce more even as we restrain capital spending.” The company plans to keep annual capital spending at about 700 billion yen ($8.43 billion) for at least the next five years, Executive Vice President Atsushi Niimi said Dec. 24.

The end of the government’s subsidy program to buy energy- efficient cars in September put the brakes on consumer spending and helped cause the economy to shrink in the fourth quarter.

Orders will likely drop in the second half of the fiscal year ending March as companies placed them in the first half due to concern about an economic slowdown, said Susumu Kato at Credit Agricole CIB and CLSA.

“There’s a possibility that companies are pushing forward their investment plans because of the yen’s appreciation and uncertainties over the economic outlook,” said Kato, Tokyo- based chief economist for Japan at the bank. “So, machinery orders will likely decline a lot in the second half.”

Economy Contracts

Japan’s gross domestic product is expected to contract at a 1.9 percent annualized pace in the three months through December, according to a survey of 42 economists released last month by the Economic Planning Association. Growth was 4.5 percent in the third quarter as incentives to buy cars and electronics spurred consumer spending.

At the same time, there are some signs that growth is rebounding this year and some companies are increasing outlays to meet demand in Asian emerging markets and the U.S. Service providers drove down November machinery orders and manufacturers are still increasing spending, a sign that capital spending plans are intact, according to Dai-Ichi’s Shinke.

“We don’t have to conclude that today’s number suggests any major change to the fact that capital spending is improving moderately,” he said. “It’s not as if capital investment will slip into a contraction trend.”

Orders from manufacturers rose 10.6 percent in November from the previous month and those from service providers fell 10.5 percent, today’s report showed.

Toshiba Corp. President Norio Sasaki said last week that the company may increase capital spending for semiconductors by 10 percent in the fiscal year starting April 1.

Nitto Denko Corp., maker of optical film for about a third of the world’s LCD panels, said last month it will boost spending for the first time in five years as companies such as Sharp Corp. and Apple Inc. sell new tablet PCs and smartphones.

“Capital spending in equipment and facilities next fiscal year will be bigger than this year,” President Yukio Nagira said in a Dec. 22 interview, declining to give a specific figure. Nitto Denko plans to invest 36 billion yen this fiscal year.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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

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