Japan's machinery orders fall to record low value

Japan's core private-sector machinery orders unexpectedly fell in May to a record low value, pointing to a bleak outlook for capital spending and backing expectations the central bank will extend measures to support corporate finance. Bank lending slowed from a record pace in June, separate data showed, reflecting an improvement in credit conditions but also less demand from companies to borrow for investment in capital goods, analysts said.
Corporate bankruptcies rose 7.4 percent in June from a year earlier and leapt more than 18 percent from May. Government bond futures jumped on the data and stocks in machinery makers were hit as investors interpreted the data as suggesting capital spending will take a long time to recover.
"Capital spending will not stop falling until the final quarter of this year," said Azusa Kato, an economist at BNP Paribas. The data showed that core private-sector machinery orders fell 3.0 percent in May from the previous month to 668.2 billion yen ($7.05 billion), the lowest level in comparable data going back to April 1987, the Cabinet Office said on Wednesday.
The median market forecast had been for a rise of 2.1 percent. From a year earlier, core orders, which exclude those for ships and machinery at electric power firms, were 38.3 percent lower. Manufacturers increased orders by 5.4 percent, the first rise in two months, as car makers, petroleum refiners and general machinery makers raised orders, the data showed.
Orders from non-manufacturers though fell 6.9 percent from the previous month, the third consecutive month of decline, as shipping, insurance and financial companies cut orders. Large manufacturers expect their capital expenditure to fall by a record amount in the fiscal year to next March, the Bank of Japan's June tankan survey showed last week, highlighting the severity of the environment for corporate spending.
Credit conditions have eased since the BoJ started buying commercial paper and corporate debt earlier this year, prompting some central bank officials to say the authority should retreat from credit markets. But, the improvement has been gradual and BoJ Governor Masaaki Shirakawa has sounded a note of caution, saying many firms still face tough credit conditions. Other data released on Wednesday showed the balance of outstanding loans held by Japanese banks rose 2.4 percent in June from a year earlier, slowing further from a record gain in January as credit conditions eased.
Outstanding Japanese commercial paper held by banks fell 21.8 percent in June from a year earlier after a revised 19.2 percent drop in May's data. Japan's current account surplus fell 34.3 percent in May from a year earlier, as exports and income gains from investment remained subdued, Wednesday's data also showed. That compared with a median market forecast for a 24.2 percent decline.