September 8, 2011 / 9:35 AM / 8 years ago

UPDATE 5-Japan machinery orders slump, cast doubt on recovery

 * July core machinery orders fall 8.2 pct vs forecast of 4.1
pct fall
 * Follows disappointing output, exports, capex figures
 * Strong yen, potential delay in reconstruction are risks
 * Economics Minister Furukawa calls for BOJ action
 * Many analysts expect BOJ to ease in October - poll

 (Adds economics minister comment, BOJ poll)	
 By Stanley White and Rie Ishiguro	
 TOKYO, Sept 8 (Reuters) - Japan's core machinery orders
tumbled twice as much as expected  in July in a sign that
companies are delaying investment due to worries about the
strong yen, faltering global growth and slow progress in
rebuilding from the March earthquake and tsunami.	
 The data is the latest in a series of disappointing figures,
including July exports and output, that cast doubt on the
strength of Japan's recovery from its post-quake slump.	
 The report could put pressure on the government and the Bank
of Japan for action to prevent additional yen rises by
intervening in the market and further easing monetary policy.	
 Many market players expect the BOJ to ease monetary policy
next month with the most likely trigger a renewed spike in the
yen that would hurt the export-reliant economy. 	
 The brisk pace at which Japanese companies restored supply
chains and production that had been disrupted by the March 11
disaster convinced economists that the world's third-largest
economy would resume growth this quarter, expanding at the
fastest rate among major developed nations.	
 Yet the latest statistics suggest the yen's recent strength,
concerns about Europe's sovereign debt crisis and fears that the
world economy could slip back into recession are beginning to
bite.	
 "Monthly data suggest the economy has already seen a
V-shaped recovery and is likely to see only flat growth or even
deceleration from the autumn and there is an emerging risk of a
contraction in the fourth quarter," said Taro Saito, senior
economist at NLI Research Institute.	
 Core machinery orders, a leading indicator for corporate
capital spending, fell 8.2 percent in July from the previous
month, Cabinet Office data showed on Thursday. That compared
with a median market forecast for a 4.1 percent decline and
follows a 7.7 percent rise in June. 	
 Separate data showed the current account surplus fell more
than expected in the year to July as exports weakened. A service
sector sentiment index, also published on Thursday, fell for the
first time in five months in another sign that the yen's
strength and recession fears were sapping business
confidence. 	
 
 	
 GLOBAL SLOWDOWN WEIGHS	
 Sumco Corp , the world's No.2 supplier of silicon
wafers used to make chips, on Wednesday slashed its annual
operating profit forecast by 37 percent on weak PC demand and
slower-than-expected growth in smartphones and tablet PCs, and 
said the fragile economy could dampen demand further.	
 Adding to pressure on exporters, the yen has been attracting
safe-haven demand from investors unsettled by Europe's debt
crisis and the U.S. economic slowdown, even as Japan struggles
with its own debt burden and its new government faces a battle
to win a consensus over how to fund its biggest rebuilding
effort since the years after the World War Two.	
 The currency has stabilised in the past few days below
record highs hit in mid-August, allowing the central bank to
keep its policy on hold on Wednesday after it eased in August. 	
 The BOJ stuck to its view that the economy would resume
moderate growth from the next quarter, but highlighted risks
posed by the yen and growing uncertainty about the health of the
European and U.S. economies. 	
 Economics Minister Motohisa Furukawa said the yen had risen
to levels much higher than assumed by companies, potentially
hurting corporate profits and prompting companies to relocate
overseas. 	
 "I expect the BOJ to take appropriate and bold steps to
support the economy through monetary policy," he told reporters,
although he stopped short of specifying what action it should
take.	
 Many economists still think the momentum of upswing in
output in the months after the quake will be enough to produce
robust overall growth in July-September after three quarters of
contraction.	
 But they have started questioning the assumption that
foreign demand and reconstruction spending will carry the
economy forward in the final quarter of this year and early in
2012.	
 "Full-fledged reconstruction demand is unlikely to emerge
throughout this year given the delay in the third supplementary
budget," NLI's Saito said.	
 Prime Minister Yoshihiko Noda's new government formed last
week is due to compile the main reconstruction budget in
mid-October at the earliest.	
 ($1 = 77.325 Japanese Yen)	
	
 (Editing by Tomasz Janowski and Edmund Klamann)	
 
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