Reuters reported that Japanese machinery orders tumbled by the most in almost two years, suggesting a recovery in corporate spending could be delayed as companies turn cautious due to signs of a slowdown in global growth and worries about a rising yen.
Separate data showed that Japanese bank lending in June 2010 matched the biggest annual decline in almost 5 years, in a sign there is sluggish demand from companies to borrow to fund investment in plant and equipment.
Machinery orders could be a warning sign for the ruling Democratic Party. Public support for Prime Minister Mr Naoto Kan is slipping as an election approaches on Sunday. He has struggled to convince voters his party can repair public finances with higher taxes and boost growth with its economic policies.
Mr Tetsuro Sawano, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, said that "Europe's financial problems haven't had an impact yet, but companies are applying the brakes now. People are also worried about a slowdown in the United States later this year."
Core private sector machinery orders, a highly volatile series regarded as an indicator of capital spending, fell 9.1% in May, the biggest decline since August 2008. That was more than the median market forecast for a 3.1% decline. Core orders, which exclude those for ships and machinery at electric power firms, increased 4.3% in May from a year earlier, less than the median estimate for a 10.7% annual rise.
Orders from manufacturers fell 13.5% in May, faster than a 5.5% decline the previous month. Orders from the services sector also fell 6%, the first decline in three months.
Mr Keisuke Tsumura, parliamentary secretary of the Cabinet Office, said that machinery orders likely reflect a sense among companies that uncertainty about the economic outlook is increasing.
Mr Masaaki Shirakawa Bank of Japan Governor stuck to the central bank's view that Japan's economy was showing further signs of a moderate recovery, but he expressed concerns about Europe's debt woes.
He said that "Business sentiment continues to improve. Capital spending is starting to pick up as corporate revenues recover."
(Sourced from www.reuters.com)
