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Strategies & Market Trends : Countries

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From: Sam Citron4/9/2009 2:43:14 AM
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Japanese Machinery Orders Unexpectedly Rebound 1.4% (Update3)
By Jason Clenfield

April 9 (Bloomberg) -- Japanese machinery orders unexpectedly rose for the first time in five months in February, adding to signs that the recession may be easing.

Bookings, an indicator of capital investment in the next three to six months, climbed 1.4 percent from January, the Cabinet Office said today in Tokyo. The median estimate of 28 economists surveyed by Bloomberg was for a 6.9 percent drop.

Shares rose, led by Komatsu Ltd., Japan’s biggest maker of earthmovers, on optimism that the economy’s 12.1 percent contraction in the fourth quarter represented the worst of the slump. Prime Minister Taro Aso is poised to unveil a 15.4 trillion yen ($154 billion) stimulus package, the largest for a single year, to counter an unprecedented collapse in exports.

“It’s highly likely that when we look back at this downturn we’ll see that February was when it hit bottom,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Still, he added, “bottoming out doesn’t mean Japan will have a solid recovery.”

The benchmark Topix stock index climbed 2.8 percent, extending its rally to 18 percent over the past month. The machinery index surged 4.9 percent. The yen traded at 99.94 per dollar at 2:14 p.m. in Tokyo from 99.74 before the report.

Recent reports show companies plan to increase output after draining inventories, merchant sentiment climbed to an eight-month high in March, and manufacturers expect to be less pessimistic next quarter.

‘Green Shoots’

Economies around the world are showing signs of improvement as governments spend record amounts of money to bolster demand. Chinese urban fixed-asset investment climbed 26.5 percent in the first two months of 2009. South Korea left interest rates at 2 percent today after factory production gained and manufacturing confidence rose to a five-month high.

U.S. Federal Reserve Chairman Ben S. Bernanke said last month that he sees “green shoots” in some financial markets and the pace of economic decline “will begin to moderate.”

Japan’s Cabinet Office raised its assessment of machinery orders for the first time since May 2007, saying they’re “rising slightly but still on a downward trend.” Previously it said orders were declining “sharply.”

Bookings from service companies rose 3.3 percent from January, a second month of gains. Orders from manufacturers fell 8.1 percent, less than the 27.4 percent drop in the previous month.

Stimulus Plan

Confidence among Japanese merchants surged to the highest since July last month, the Cabinet Office said yesterday, indicating factory production may recover soon, according to Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. Companies cut inventories at a record pace in February.

Even so, there’s no letup in the export slump that prompted Aso to order his third stimulus plan since coming to office in September. Shipments abroad plunged a record 50.4 percent in February from a year earlier, the Finance Ministry said yesterday, and another survey showed bankruptcies rose to a six-year high in March.

The increase in machinery orders “could be a temporary rebound from the rapid worsening in the past six months and it’s difficult to say Japan’s economy is heading for a sustainable recovery
,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “The private sector is still reluctant to invest as their cash flow remains severe.”

Cut Spending

The ruling Liberal Democratic Party will propose the government spends 15.4 trillion yen in the latest package, according to a document obtained by Bloomberg News. The measures would represent 3 percent of gross domestic product, taking Aso’s total stimulus to 25 trillion yen.

Bank of Japan Governor Masaaki Shirakawa said in parliament today that the economy is likely to keep worsening and uncertainty remains high.

Plunging demand for Japanese cars and electronics drove manufacturer sentiment to a record low in March, the central bank’s Tankan survey showed last week. Big companies said they plan to cut spending by 6.6 percent this fiscal year, the bleakest projection since the 2002 recession.

While the Tankan showed large companies expect sentiment to improve in three months, it also indicated that they have too many workers and excess capacity.

Sharp Corp., which yesterday posted its first loss in half a century, is eliminating 1,500 workers and closing two production lines as global flat-panel television sales slump.

Honda Motor Co. last month delayed the opening of a new domestic factory for the second time in four months. The plant, initially scheduled to start production in 2010, will now open in 2012 at the earliest, the automaker said.

“Companies are clearly under pressure, earnings have been squeezed and you’d expect to see that reflected in the investment,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Capital spending will likely remain a drag on growth for the next few quarters.”
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