Japan machinery orders slip again, darkening outlook

Japanese orders for machinery dropped for a second straight month in July, government data showed Thursday, raising further concern about the outlook for the world's second largest economy.

Core private-sector machinery orders, which exclude particularly volatile demand from power companies and for ships, are regarded as a leading indicator of corporate capital spending.

Orders fell 3.9 percent in July from the previous month, the Cabinet Office said, following a 2.6 percent fall in June.

While the latest figure was better than the market's forecast of a 4.3 percent fall, analysts said it showed companies are wary of boosting capacity at a time of high material costs and slowing exports.

"Demand overseas keeps falling, and considering the current economic situation, the trend (in machinery orders) is likely to continue," Kyohei Morita, chief Japan economist at Barclays Capital, told Dow Jones Newswires.

Orders by manufacturers, such as machinery makers that buy engines and tools, tumbled 10.4 percent in July, the data showed.

Machinery orders from non-manufacturers such as farmers and telecommunication firms were down 2.4 percent.

Many economists suspect that Japan's economy, Asia's largest, may have slipped into recession after some six years of almost continuous growth.

A global economic slowdown, coupled with higher commodity prices, has hit the Japanese economy, which has long relied on exports of finished goods made from imported raw materials.

Revised estimates for gross domestic product slated for release on Friday are expected to show that Japan's economic contraction in the second quarter was more severe than initially thought.

Experts think the economy shrank at an annual pace of 3.3 percent in the quarter, worse than the 2.4 percent fall in preliminary data issued a month ago.

The data "will probably help clarify that the economy is in a recession," said Dai-Ichi Life Research Institute senior economist Toshihiro Nagahama.

Japan also saw bleak data on Wednesday, with the current account surplus falling on rising energy costs and wholesale prices growing at their fastest pace in 27 years.

However, some analysts were less pessimistic about machinery orders, noting that crude oil and commodity prices have recently been easing.

"The result was in line with expectations and I am keeping my view that the trend of orders will remain flat for the months ahead," said Shinko Research Institute economist Norio Miyagawa.

"Crude oil prices and commodity prices have been falling," he said, "so that's positive."

The data comes amid a race within Japan's ruling Liberal Democratic Party to choose a new prime minister, in which the faltering economy has become a top issue.