Japan's corporate, machinery orders tumble

A key gauge of Japan's corporate capital spending fell more than expected in September and manufacturers expect a further drop this quarter as business confidence sags in the face of the strong yen and slowing global growth. The data herald a rough patch in the economy's recovery from a devastating earthquake and tsunami in March, with some economists warning it may shrink again this final quarter, given the added impact of floods in Thailand, Asia's major production base.
Core machinery orders, a leading indicator of capital spending six to nine months ahead, fell 8.2 percent from the previous month, bigger than a median market forecast for a 7.5 percent fall, government data showed on Thursday. Manufacturers expect core orders to fall 3.8 percent in October-December following three straight quarters of rises that were supported by companies' efforts to mend broken supply chains and facilities after the March disaster. A Reuters survey published on Thursday showed manufacturers' sentiment worsened for the second straight month in November and they expected further deterioration three months ahead.
"The machinery order data signals corporate activity will stagnate towards the year-end," said Yuichi Kodama, an economist with Meiji Yasuda Life Insurance. "Japan's economy is likely to hold steady at best in the final quarter of this year and may contract again after a rebound in the previous quarter, as the government's third supplementary budget for reconstruction hasn't been enacted yet."
Japan is expected to enact a 12.1 trillion yen ($155 billion) supplementary budget for financing reconstruction from the March disaster by the end of this month, keeping alive hopes that economic growth will resume even as overseas economies falter.
Third-quarter GDP data due on Monday is set to confirm that the world's third-biggest economy rebounded from its post-quake recession, expanding at a 6.1 percent annual clip, much faster than the US economy in the same period. But a late October rally in the yen to record highs, driven by safe-haven demand and intensifying doubts about Europe's ability to contain its debt crisis, prompted Japanese authorities to act to support the recovery.
Tokyo sold a record amount of yen, while the Bank of Japan eased its ultra-loose policy further through an increase in government bond purchases. In loosening its policy, the central bank stuck to its projection of a moderate economic recovery in the next two years on the back of reconstruction spending at home and the resilience of emerging economies.