UPDATE 2-Japan machine orders fall shows slow capex recovery

* Machinery orders fall for 2nd straight month in February

* Drop in non-manufacturers orders drags down headline figure

* Govt maintains view on capex, saying it is levelling off

* Current account in surplus for 13th month as exports jump

* Exports seen supporting economy as demand sags
(Adds govt official quotes, details)

By Tetsushi Kajimoto

TOKYO, April 8 (BestGrowthStock) – Japan’s core machinery orders
unexpectedly fell for a second straight month in February in a
sign that the pace of recovery in companies’ capital spending
could stay slow and weigh on growth.

The surplus in Japan’s current account rose by almost a third
in February from a year earlier due to a record annual gain in
exports, showing that a steady pickup in exports, particularly to
China, will continue to support Japan’s economy.

Strong exports should encourage Japanese manufacturers to
gradually increase corporate spending as the year progresses,
economists say. But non-manufacturers are likely to delay
spending due to weak domestic demand, and that will hold back
overall growth in capital expenditure.

The decline in machinery orders could cause concern for the
government, which took office last September, as it has little
leeway to boost the economy with fiscal policy should Japan
falter on its gradual recovery path ahead of a mid-year election
for parliament’s upper house.

The data could also pose a challenge to the Bank of Japan as
it could struggle to reconcile its growing optimism on the
economy with government pressure to ease monetary policy further.

“This data does fluctuate a lot, but the overall trend is
that capex has bottomed out,” said Yoshiki Shinke, a senior
economist at Dai-ichi Life Research Institute in Tokyo.

“One concern is non-manufacturers pulled down the headline
number as domestic demand is weak. From here on, manufacturers
will lead gains in capex, but the pace will likely be slow.”
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on machinery orders http://link.reuters.com/suf86j
More stories on Japan’s economy [ID:nECONJP]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Core private-sector machinery orders, a highly volatile
series regarded as an indicator of capital spending, fell 5.4
percent in February, against a median market forecast for a 3.7
percent rise. [JPMORD=ECI] (ECONJP: )

The core orders, which exclude those for ships and machinery
at electric power firms, were 7.1 percent lower than the same
month last year, with a 2.0 percent increase expected.

Orders from manufacturers fell 0.3 percent in February, with
materials sectors such as steel and chemicals putting a drag on
the figure. Orders from non-manufacturers fell 4.0 percent due in
part to lower orders from wholesalers, retailers and information
services.

TOO ROSY VIEW?

The BOJ kept monetary policy unchanged on Wednesday and made
slightly more upbeat comments about capital expenditure and the
economy. [ID:nTOE63600E]

But some analysts say the machinery orders data may not go
down well with the central bank’s argument.

“The BOJ has raised its view on the economy which it says is
showing some signs of self-sustained recovery, but that sounds a
little too rosy when we look at data like today’s,” said Takeshi
Minami, chief economist at Norinchukin Research Institute.

“Deflation remains the focal point in monetary policy, so the
central bank will have no choice but to lean towards easing as
long as it cannot see a way out of deflation.”

The Cabinet Office stuck to its assessment of machinery
orders, saying they are levelling off, but officials remain
cautious on the outlook.

“We maintain the view that capital spending is levelling off.
We have pointed out the possibility of the economy showing some
signs of self-sustained recovery but careful judgment is needed,”
said Keisuke Tsumura, a parliamentary secretary at the Cabinet
Office.

The BOJ’s latest tankan showed on April 1 that big firms plan
to cut capital spending, a key driver of the economy, by 0.4
percent in the fiscal year that started on April 1, against a
planned 14.2 percent drop in the previous year. [ID:nTOE61E037]

Japan’s current account surplus rose 29.6 percent in February
from a year earlier to 1.47 trillion yen ($15.8 billion), less
than the median estimate for a 42.8 percent annual rise. It has
been in the black for 13 months in a row. [JPCURA=ECI]

Japan had a spotty recovery last year from recession, but
economists say exports are likely to underpin growth this year.
($1=93.27 Yen)

Stock Market Research

(Additional reporting by Hideyuki Sano; Editing by Michael
Watson)

UPDATE 2-Japan machine orders fall shows slow capex recovery