November 8, 2012 / 12:35 AM / in 5 years

UPDATE 2-Japan weak machinery orders, services outlook raises recession risk

* Sept machinery orders -4.3 pct vs forecast -1.8 pct
    * Govt maintains view on machinery orders
    * Current account surplus -68.7 pct vs forecast -51.9 pct
    * Analysts say economy has been weakening since spring
    * Service sector sentiment index hits lowest since May 2011

    By Kaori Kaneko
    TOKYO, Nov 8 (Reuters) - Japan's core machinery orders
plunged more than expected in September in another sign that the
world's third-largest economy was slipping into recession,
dragged down by a slowing global economy, tensions with China
and weakening domestic demand.
    The nation's current account surplus, the broad measure of
its trade and other flows, also fell more than forecast,
following a sharp drop in exports.
    Core machinery orders, seen as a leading indicator of
capital spending in the coming six to nine months, fell 4.3
percent in September compared with a median forecast of a 1.8
percent decline and a 3.3 percent drop in August, government
data showed on Thursday.
    The data are the latest in a string of gloomy statistics
reflecting the pain inflicted on the economy by the slowdown in
China, Japan's top export market, compounded by a wave of
anti-Japanese sentiment triggered by a territorial dispute.
    With the effect of rebuilding from last year's earthquake
and tsunami fading, the government acknowledged earlier this
week that its index of leading indicators gauge fell to a level
suggesting the onset of a recession.
    Manufacturers surveyed by the Cabinet Office have forecast
that core orders will rise 5.0 percent in October-December after
falling 1.1 percent in the previous quarter. 
    But Takeshi Minami, chief economist at Norinchukin Research
Institute in Tokyo, said that may be too optimistic and mounting
evidence of economic weakness will keep the Bank of Japan under
pressure to deliver more monetary stimulus.
    "Manufacturers expect machinery orders to rise 5 percent in
October-December, but given weakness in external demand, that
may be tough to achieve as capital spending will weaken toward
the year-end," Minami said.
    "Japan's economy likely slipped into recession earlier this
year and will gradually weaken for the time being. That means
prospects of further monetary easing in December will persist." 
    Separate data showed on Thursday the nation's October
service sector sentiment hit the lowest since May 2011 hurt by
the Japan-China territorial spat and deepening worries about the
economic outlook.
    As a result, the government cut views on the index for the
second straight month saying "the economy is weakening further."
    Last week, the central bank boosted its monetary stimulus
for the second month in a row and for the fourth time this year,
and combined it with an unprecedented joint statement in which
the government pledged continued efforts to end deflation.
    Economists polled by Reuters last week estimated the economy
contracted 0.9 percent in the third quarter after September
exports and production suffered their sharpest declines since
the aftermath of the March 2011 earthquake and tsunami.
    Compared with a year earlier, core orders fell 7.8 percent
in September. 
    Separate government data showed the nation's current account
surplus fell n early 69 percent in September from a year earlier
and stood at 503.6 billion yen ($6.3 billion), against a median
forecast for 774.5 b billion yen. 
    In seasonally adjusted terms, the current account logged a
142 billion yen deficit, the first shortfall since such
calculations began in 1996.
    Japan's economy outperformed most of its Group of Seven
peers in the first half of this year on robust spending by
consumers and reconstruction after last year's earthquake and
tsunami. But weak external demand and a strong yen have led
analysts to project that growth will stall for the rest of this
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