Japan Machinery Orders Drop to Lowest Level in 22 Years

Japan’s core machinery orders, a closely watched indicator of corporate capital spending, tumbled to a 22-year low in April as uncertainty about an economic recovery kept companies cautious.

Core private sector machinery orders, which exclude volatile orders from electric power companies and shipbuilders, fell 5.4 percent from March to 688.8 billion yen ($7.1 billion), the government said Wednesday. The result marked the lowest value since April 1987 and suggests that companies aren’t convinced a recovery is emerging.

The data surprised analysts, who had been expecting an average 0.6 percent rise, according to a Kyodo news agency survey.

“Companies are very reluctant to spend as they have yet to see signs showing the economy has bottomed,” said Tetsuya Igarashi, an official in the Cabinet Office, which released the data.

Like its Asian neighbors, Japan has been pummeled by the plunge in global demand triggered by the U.S. financial crisis last year. The country’s famous brands including Toyota and Sony have been among the hardest hit, posting massive losses, cutting jobs and slashing production.

April’s 5.4 percent fall was the steepest decline since November, when machinery orders dropped 12.2 percent, the government said. Orders also fell for the second consecutive month.

Machinery orders in the manufacturing sector dropped 9.4 percent month-on-month, while those among non-manufacturers fell 8.8 percent.

Recent glimmers of hope, however, point toward an economic uptick later this year. The fall in exports looks to have bottomed, and economists predict capital expenditures to begin recovering in the second half.

Even in the latest machinery orders data, key sectors for the world’s second-biggest economy posted gains. Orders from the auto industry rose 10.5 percent, while those from the electronics sector jumped 15.6 percent in April.

But it’s not the manufacturers that worries Kyohei Morita, chief economist at Barclays Capital in Tokyo.

“While the Japanese economy is now heading toward a moderate recovery led by manufacturers and foreign demand, non-manufacturers — who are closely tied to domestic demand — look like they will continue to lag behind for now,” Morita said in a note to clients.

Others caution against getting too excited about any bounce in machinery orders in the coming months, since a rise is bound to look big compared to April’s numbers.

The Cabinet Office said Japan’s core machinery orders from April to June would fall by 5 percent from the January-March quarter.

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AP Writer Shino Yuasa contributed to this report.

6/10/2009 2:02 AM TOMOKO A. HOSAKA Associated Press Writer TOKYO