Japan Machinery Orders Rebounded Less Than Forecast in June

Japan’s machinery orders rebounded less than forecast in June, underscoring concerns the world’s third-largest economy’s recovery will slow in the second half of this year.

Bookings, an indicator of capital spending, rose 5.6 percent, after slumping 14.8 percent in May, the biggest drop in more than a decade, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 12 percent increase. Large-scale orders can cause the results to be volatile.

With a 19 trillion yen package ($242 billion) to rebuild areas hit by last year’s earthquake supporting the economy, the government may report next week a fourth straight quarter of growth in the April-June period. The effects of this stimulus are expected to peter out soon, placing the onus for growth on the private sector.

“Corporate sentiment is cooling because the global economy is looking uncertain, and that’s causing companies to rein in business investment,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “The chances are increasing that Japan’s growth will sag in the second half of the year.”

Bank of Japan

The Bank of Japan’s policy board will announce today whether it will relax monetary policy to spur growth and shake off more than a decade of deflation. All 22 economists surveyed by Bloomberg News forecast the central bank will refrain from easing.

Machinery orders fell 4.1 percent in the April to June period, and are forecast to decline a further 1.2 percent in this quarter, today’s report said. These figures exclude the volatile sectors of shipping and power generation.

Japan’s economy probably grew at an annualized pace of 2.3 percent in the second quarter after 4.7 percent growth in the January-March period, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the report Aug. 13.

Slowing GDP

Growth is expected to slow in the second half of the year as Europe’s debt crisis and economic slowdown cut export demand, and as growth-boosting measures such as subsidies for fuel- efficient cars and reconstruction spending come to an end.

After growing for three quarters, the public demand component of machine orders is forecast to fall 14.6 percent in the July to September period. The government also estimated that overseas orders will drop 5.6 percent in the same period, after declining 17.1 percent last quarter.

Exporters are being hit by a yen that has risen more than 6 percent against the dollar since mid-March and is hovering close to last year’s postwar high of 75.35 against the U.S. currency. Nikon Corp. (7731), Japan’s largest chip-making lithograph maker, cited strength in the yen in cutting yesterday its operating profit forecast for the current fiscal year.

The yen was 78.43 per dollar at 9:40 a.m in Tokyo. The Nikkei 225 Stock Average was down 0.1 percent at 8,874.56 after rising for three days. Benchmark 10-year benchmark bond yields fell 2.5 basis points to 0.770 percent.

The nation posted a bigger-than-estimated current-account surplus in June as oil prices fell to a low for the year, the Ministry of Finance said in Tokyo yesterday.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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