UPDATE 2-Japan machine orders could signal tough times ahead

(For more stories on the Japanese economy click [ID:nECONJP])

* Bank loans fall for 12th month on weak capex appetite

* More glum data could prompt BOJ action -analyst

* Gains in current account surplus slow sharply

* Minister says BOJ can do more, wants it to buy more debt
(Adds details on BOJ, economy minister’s quote)

By Tetsushi Kajimoto and Leika Kihara

TOKYO, Dec 8 (BestGrowthStock) – Japanese core machinery orders fell
at a slightly faster pace than expected in October, in a sign
that companies are holding back spending due to the yen’s
stubborn strength and slowing demand at home and abroad.

The data provides further evidence that the economy’s
recovery since last year is screeching to a halt as exports slow
and stimulus-driven domestic consumption wanes, with economists
predicting a modest contraction in GDP in the current quarter.

Adding to the murky outlook for the economy, bank lending
marked its 12th straight month of annual declines in November as
ample fund supplies by the Bank of Japan fail to filter through
the economy due to companies’ reluctance to invest.

“The machinery orders data suggests corporate capital
spending has not fully recovered to the pre-crisis level and may
see a slowdown in the current quarter and next quarter as the
economy stalls,” said Takeshi Minami, chief economist at
Norinchukin Research Institute.

“If forthcoming Japanese economic data turns out to be
similarly dour, the Bank of Japan is likely to be prompted to
take fresh action.”

Economists expect the economy to resume its recovery early
next year on the strength of emerging economies, but this
scenario is far from assured due to China’s policy tightening,
weakness in the U.S. job market and credit worries in Europe.

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Graphic on capex http://link.reuters.com/hej98q

More stories on the Japanese economy [ID:nECONJP]

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CAUTIOUS STANCE

Core machinery orders fell 1.4 percent in October from the
previous month, down for a second straight month, Cabinet Office
data showed on Wednesday. [JPMORD=ECI]

The fall in highly volatile core orders, regarded as a
leading indicator of capital spending, exceeded the median
estimate for a 1.0 percent decline and followed a 10.3 percent
drop in September.

The balance of outstanding loans held by Japanese banks fell
2.0 percent in November from a year earlier, the Bank of Japan
said, indicating that companies remain hesitant to borrow money
for investments. [JPBNK=ECI]

Companies may tighten their already cautious stance on
spending if the yen resumes its rise, analysts say, possibly
pressuring the Bank of Japan to ease monetary policy further.

The BOJ last month rolled out a 5 trillion yen ($60 billion)
asset buying scheme under which it injects funds into the
struggling economy by buying assets ranging from government bonds
and corporate debt to exchange-traded funds. The BOJ holds its
next policy meeting on Dec. 20-21.

The central bank’s asset purchase scheme has silenced many in
the government who have criticised it in the past for not being
aggressive enough. Still, one cabinet minister who is a known
critic of the BOJ is calling for even bolder measures.

“For the BOJ to adopt an inflation target, it would require
revisions to the BOJ Law,” Economics Minister Banri Kaieda said.

“I think the law should be revised as needed but at present
there are things that can be done within the current BOJ Law and
there are things that the BOJ hasn’t done.”

One option for the BOJ is to scrap its self-imposed rule that
limits the balance of its total bond holdings to the amount of
banknotes in circulation, Kaieda said.

The BOJ has said its asset buying scheme does not fall under
its banknote rule.

The current account surplus rose 2.9 percent in October from
a year earlier, Ministry of Finance data showed, below the median
market forecast for a 9.0 percent rise and slowing sharply from a
24.3 percent rise in September on moderating overseas demand.
[JPCURA=ECI]

The economy’s dimming outlook bodes ill for the government,
which is determined to stick to its bond issuance cap and
spending ceiling in the budget for the fiscal year starting next
April, due to be drafted later this month.
($1=82.67 Yen)
(Writing by Rie Ishiguro; Editing by Edmund Klamann and Michael
Watson)

UPDATE 2-Japan machine orders could signal tough times ahead