Japan Machinery Orders Fall More Than Forecast on Exports

Japan’s machinery orders fell more than expected in September as slowing global demand hurts exports, while the nation’s current account surplus narrowed to its lowest level for the month since at least 1985.

Orders, an indicator of capital spending in three to six months, declined 4.3 percent from the previous month, the Cabinet Office said today in Tokyo. The median of 29 estimates in a Bloomberg News survey was for a 2.1 percent drop. The excess in the broadest measure of Japan’s trade was 503.6 billion yen ($6.3 billion), compared with a median estimate of 761.8 billion yen, a Finance Ministry report showed.

Data due next week will probably show the world’s third-largest economy shrank the most since last year’s earthquake. A political impasse over deficit enabling legislation is impeding the government’s scope to aid growth, placing the onus on the central bank to add stimulus.

“We are in the middle of a technical recession” of two consecutive quarters of contraction, Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former Bank of Japan official, said before the report. “It’s hard for the government to do anything to get us out of recession, so the BOJ may need to do more.”

Gross domestic product probably shrank an annualized 3.4 percent in the three months through September, the first decline in five quarters, according to the median estimate of economists surveyed by Bloomberg News. The Cabinet Office will release the report Nov. 12.

Falling Output

Industrial production in September fell the most since the March 2011 earthquake and exports dropped more than expected. Retail sales the same month rose less than forecast as the expiry of government subsidies for purchases of fuel-efficient cars sapped consumer demand.

“The weak global economy is curbing orders from overseas firms,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, wrote in an e-mailed note before the report. A broader investment slowdown has also dragged on machinery orders, he said.

Fanuc Corp., the world’s largest maker of controls that run machine tools, reported last month its first-half profit missed its forecast as slower demand for goods in Europe dented production and deterred manufacturers from investing in new equipment.

The current account surplus has fallen from a peak of 3.3 trillion yen in March 2007, with the nation posting trade deficits in 10 of the last 12 months. Only the income surplus, the current account portion that includes earnings from overseas investment, is preventing Japan from falling into deficit, which would require overseas funding to service the world’s largest public debt.

Exports Deteriorating

“The trade balance is worsening, mainly because of the deterioration of exports,” Shirakawa said. “The current account will turn to a deficit, possibly in 2016.”

The Bank of Japan expanded its asset-purchase program last week for the second time in two months and unveiled an unlimited program of low-interest loans for companies. The yen touched 80.68 per dollar on Nov. 2, three days after the BOJ’s decision, its lowest since April.

The government announced Oct. 26 a 750 billion yen stimulus package to shore up growth, the scope of which is limited because the political opposition is blocking legislation that allows borrowing to pay for this year’s deficit. The stand-off leaves the government at risk of running out of money this month.

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