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Saturday 03rd of October 2009
July 8, 2009    

Japan machine orders hit record low in May

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by Kay Murchie

Japan’s core private sector machine orders, a leading indicator of capital spending, fell in May to a record low, the Cabinet Office said today in Tokyo.

The world’s second largest economy, which is heavily dependent on exports, has been hit by a slump in demand for its products overseas, particularly cars and electrical goods.

Exports fell more than 40% compared with a year earlier - causing the current account surplus to contract to 1.3 trillion yen ($13.8 billion), while imports plummeted 43.9%.

The economy had begun to see positive news after the Bank of Japan’s closely watched quarterly Tankan survey last week revealed an improvement in business confidence in Japan.

In addition, last month the Ministry of Economy, Trade and Industry announced that industrial production was up 5.9% in May from a month earlier.

However, there have recently been fears that the Japanese economy could be heading for deflation after figures unveiled that Japan’s core consumer price index (CPI) fell 1.1% in May compared with the same month last year - the most since records began almost forty years ago.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

Returning to today’s news, core private sector machine orders fell 3% from April to 668.2 billion yen (£4.4 billion). The fall in May is less than the 5.8% fall seen the previous month but is in stark contrast to the 2% rise forecast by analysts.

According to Azusa Kato, an economist at BNP Paribas, “Capital spending will not stop falling until the final quarter of this year.”

“Orders from non-manufacturers were weak, reflecting concerns over domestic demand. For manufacturers perhaps the worst is over, but exports are unlikely to recover quickly as they did in the previous boom,” he added.

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