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Japan's machinery orders fall in March

The 8.3% decline is the second monthly drop since a nearly 20% surge in January.

May 15, 2008|From Bloomberg News

Japanese machinery orders fell for a second month in March as a global slowdown and waning profits dissuaded companies from investing in factories and equipment.

Equipment orders -- which signal capital spending in the next three to six months -- declined 8.3% from February, when they fell 12.7%, the Cabinet Office said today in Tokyo. The median estimate of 33 economists surveyed by Bloomberg News was for a 5.1% drop.

Toyota Motor Corp. last week said it would cut plant and equipment spending as falling U.S. sales, higher commodity prices and a stronger yen erode earnings.

Goldman Sachs Group Inc. expects annual profit at Japanese companies to fall for the first time in seven years.

The central bank's Tankan survey of business confidence last month showed that Toyota wasn't alone in trimming spending. Large companies said they planned to cut capital investment by 1.6% this fiscal year, the worst projection since the economy emerged from a recession in 2002.

Analysts believe that a 1% drop in business spending last quarter was the main reason Japan's expansion slowed in the three months that ended March 31.

The gross domestic product report, due Friday, will probably show that growth slowed to 2.5% from 3.5% in the fourth quarter, according to surveyed economists.

Still, the declines in machinery orders follow a 19.6% surge in January, the biggest gain in more than seven years.

Businesses may keep spending to replenish worn-out equipment, said Yoshihiko Senoo, head of research at the Cabinet Office's Economic Planning Agency. About 60% of Japanese businesses said the main reason for capital investment in the year ended March 31 was to upgrade equipment, a government survey of more than 10,000 businesses released in March shows.

"These investments are unavoidable and may keep supporting spending," Senoo said before today's report.

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