Japan’s economic outlook darkened further yesterday as a bleak snapshot of business investment and a renewed threat of deflation stoked fears that the recession was far from over.
The government said machinery orders, a closely watched gauge of corporate spending on factories and equipment, fell for a fourth straight month, marking the longest such streak on record.
It said there was no sign of a recovery in the orders, which fell 3.2 percent in January from the previous month as exports collapsed.
“Honestly, this month’s result is so bad,” a government official told reporters. “We couldn’t find any positive factors anywhere.”
CAR INDUSTRY
Orders from the car industry fell 36.2 percent, while overseas orders plunged 49 percent — both unprecedented drops.
“We believe capital expenditure will continuously decrease this year,” RBS Securities economist Junko Nishioka said.
Investors managed to look beyond the latest raft of poor data. The Nikkei stock index soared 4.55 percent, rebounding from a more than 26-year low after a powerful rally on Wall Street.
Japan’s corporate sector was a key driver of a recovery in Asia’s largest economy following the 1990s recessions, when companies enjoyed strong profits and invested heavily to expand their production facilities.
But the global downturn has caused demand for Japanese goods to dry up, prompting companies such as Toyota and Sony to shed thousands of jobs.
Japan’s exports almost halved in January from a year earlier as factory output plummeted 10 percent month-on-month.
“Turmoil in the global financial markets in September-October last year paralyzed trade finance globally, which depressed production [and] orders at epic proportions,” Morgan Stanley economist Takehiro Sato wrote in a note.
DEFLATION FEARS
Fears of a return to deflation mounted as the central bank announced that wholesale prices fell 1.1 percent last year from a year earlier, the sharpest fall in almost six years.
Japan was plagued by a deflationary spiral for years after its asset price bubble burst in the early 1990s, deterring consumers from spending and reducing corporate profits.
Inflation soared last year on the back of higher oil and material costs, but has since evaporated as energy prices cooled and domestic demand weakened.
Japan’s economy has been battered by a worldwide drop in demand for cars, high-tech goods and machinery, putting it on course for its deepest recession since World War II.
The economy contracted 12.7 percent on an annualized basis in the final quarter of last year, the worst performance in almost 35 years, the government said last month. There are concerns that the figure might be revised today to show an even bigger decline.
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