Japanese Machinery Orders Up After Record Low

TOKYO (AP) -- Japan's core machinery orders, a closely watched indicator of corporate capital expenditure, rose slightly in August from a record low, showing companies remain reluctant to spend despite some improvement in global demand.

Core private sector machinery orders inched up 0.5 percent to 668.1 billion yen ($7.6 billion), according to the Cabinet Office's monthly report Friday. The figure excludes often-volatile orders from shipbuilders and electric power companies.

The figure undershot Kyodo News agency's average market forecast of a 2.3 percent rise. But it was an improvement from a 9.3 percent decline in July to the lowest level since the government started compiling data in 1987.

Marked improvements in orders at auto parts makers and steel companies contributed to the climb.

The latest result adds to signs that Japanese companies remain reluctant to spend despite an emerging turnaround in global demand. Their caution suggests that recovery in the world's second-largest economy is more fragile than robust.

Chiwoong Lee, an economist at Goldman Sachs in Tokyo, said the latest results confirm capital investment remains "slack" but that it may be "at last bottoming."

A central bank survey of business sentiment last week showed that companies plan to slash capital expenditures by 10.8 percent this fiscal year. Companies also said they still have too much capacity and too many workers.

Japan's heavy reliance on exports, which drove economic expansion for five years through 2007, backfired in the aftermath of last year's global financial crisis. Between the third quarter of 2008 and the first quarter of 2009, Japanese exports plunged by the steepest margin among the Organization for Economic Cooperation and Development's 30 member countries.

Governments around the world responded with emergency stimulus spending, which has helped kickstart demand among Japan's major trading partners like China.

Still, the optimism about rising exports is being offset by concerns about persistently low domestic demand and weak corporate profits due to the yen's recent appreciation.

The yen has surged lately, sending the dollar down to around 89-yen levels. That's going to cut into exporters' overseas profits and make their products more expensive and less competitive in foreign markets.

Overall machinery orders fell 1.9 percent, as foreign orders dropped 15.7 percent and government orders fell 7.2 percent.

The Cabinet Office predicted in its June survey that core machinery orders would fall 8.6 percent in the July-September quarter.

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