Japan’s Machinery Orders Fall as Factories Sit Idle

(Bloomberg) -- Orders for Japanese machinery resumed falling in March, a sign that managers remain wary of upgrading factories and equipment before an economic recovery takes hold.

Bookings, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 4.6 percent drop.

Although Japan’s worst recession since World War II probably bottomed last quarter, the collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. With factory lines sitting idle and profits falling, companies have little reason to invest in new equipment, spending that accounts for about 16 percent of the world’s second-largest economy.

“The economy is still in bad shape,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Companies are still reluctant to make new investments.”

The Nikkei 225 Stock Average climbed 1.7 percent as of the lunch break in Tokyo. The yen traded at 95.97 versus the dollar from 96.10 before the report.

From a year earlier, orders fell 22.2 percent in March compared with 30.1 percent in February. The Cabinet Office said the “pace of declines has eased,” changing the wording of its assessment from “the orders trend continues to decline.”

China’s Demand

Bookings from abroad, which aren’t included in the headline number, jumped 46.4 percent, the biggest monthly gain on record. The Cabinet Office doesn’t give any information about the geographic origin of the orders, though an official said China is likely to have been a source of demand.

Analysts predict a government report next week will show the economy shrank at an annual 16.2 percent pace last quarter, the worst showing since records started in 1955 and the fourth contraction in a row.

Data released in the past month suggest gross domestic product may rise this quarter, albeit building from a low point.

Confidence among merchants and small businesses improved in April. Exports increased in March from a month earlier, and factory production rose for the first time in six months. Bank of Japan Governor Masaaki Shirakawa said this week that the gain in output shows the economy is “leveling out.”

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