UPDATE 2-Mild fall in Japan machinery orders, outlook weak
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TOKYO, Aug 7 (Reuters) - Japan's core machinery orders fell much less than expected in June, suggesting that capital spending has not been hurt too badly so far by high raw material costs and a global slowdown that are pushing Japan towards a recession.
But manufacturers surveyed by the government said they expected orders to decline in the third quarter, reinforcing the recession outlook and a belief that Japan's interest rates will be kept at their current low levels for a while.
"The latest reading is not so bad given deteriorating external conditions," said Hiroshi Shiraishi, an economist at Lehman Brothers Japan.
"As companies, mainly large corporations, have solid balance sheets, a deterioration in external conditions does not lead straight to a fall in capital spending."
Core orders, a highly volatile series regarded as an indicator of capital spending in the coming six to nine months, fell 2.6 percent in June, only around a quarter of the 9.6 percent drop expected by economists.
The core orders were supported by sectors such as shipbuilding, transport and communications, while the steel, electric machinery and financial sectors dragged them down.
For the April-June quarter, orders were up 0.6 percent, marking the fourth straight quarter of growth -- easing some of the concerns about second-quarter GDP figures due next week that economists expect to show the economy is contracting.
RECESSION FEARS
Most economy watchers, including government officials, say Japan is either heading into or already in a recession, as Japan defines the term.
Japan measures a recession as a downturn in the economic cycle, which varies from the more widely used definition of two straight quarters of economic contraction.
Reinforcing that view, manufacturers surveyed by the Cabinet Office forecast a 3.0 percent fall in core orders, which exclude those for ships and machinery at electric power firms, in the current quarter to September.
The government kept its assessment on machinery orders unchanged, saying they have been weakening recently.
That bodes ill for the outlook for capital spending, a key driver of Japan's longest postwar expansion, which looks to have ended.
"With exports falling and corporate earnings not good, we're seeing negative factors for the outlook for capital expenditure," said Takeshi Minami, chief economist at Norinchukin Research Institute. Continued...
