Japan Machinery Orders Fall in November 2007

Japan's machinery orders fell last November as companies seem to have cut back on spending in anticipation the U.S. slowdown will spread to Europe and Asia and hurt Japanese exports. Orders fell 2.8 percent from October, a month in which they rose 12.7 percent, the Cabinet Office said in Tokyo today.




The Topix stock index also fell 3.5 percent today, following an unexpected drop in U.S. retail sales announced yesterday. The yen also keeps on pushing upwards at the moment, rising to 106.05 per dollar at the close in Tokyo this afternoon, after touching 105.97, the strongest since May 2005 earlier in the day.

In seperate news it was announced that Japanese producer prices rose 2.6 percent in December from December 2006, the fastest pace since September 2006. Higher oil and raw-materials costs are thus squeezing profit margins at just the time when both internal and external demand are slackening off.



A Bank of Japan survey out today also showed that consumers last quarter became the most pessimistic they have been about the economy since March 2003. And 86 percent of respondents predicted prices will rise this year, the highest proportion since the central bank started asking people about inflation expectations in 1997. Some 54.5 percent of the survey's respondents said they plan to cut back on spending this year. About 40 percent said they expect wages to fall this year, compared with 38.9 percent in the previous survey. Meantime Bank of Japan Governor Toshihiko Fukui said yesterday that Japan's growth will keep slowing "for the time being" reinforcing speculation policy makers may lower interest rates at some point in the not too distant future.

Economy Watchers Index December 2007

This post is more to keep the data set up to date than to register any real sense of surprise about the fact that Japanese merchant sentiment fell to a five-year low in Decemebr, as stagnant wages and record petrol prices left consumers with less cash to spend at restaurants and shops. Unfortunately, as I said yesterday, this is now becoming - at least in the short term - all too predictable. Surprises - if there are any to come - will probably start to arrive after we enter the recession.

The Economy Watchers index, a survey of barbers, shopkeepers and others who deal with consumers, slid for a ninth month to 36.6 in December from 38.8 in the previous month, the Cabinet Office said today in Tokyo, the lowest since January 2003. A number less than 50 means pessimists outnumber optimists.



Merchants' views on prospects for business over the next two to three months also deteriorated. The outlook index slid to 37.0 last month from 38.8, a five-year low.

Japan Leading Indicator November 2007

Japan's broadest indicator of future economic activity was down again this month, the fourth cosnecutive weak showing, suggesting that the what has been the longest expansion in more than 60 years may well now be coming to an end. The leading index was at 10.0 percent in November, the Cabinet Office said today in Tokyo. A reading of below 50 signals slower growth in the next three to six months.



Weak domestic demand and consumer consumption as Japan's population and workforce steadily age leave the economy increasingly dependant on export growth and overseas demand. To date the slowdown in US demand has been comensated by growth in Europe and China, but now there are clear signs the Chinese authorities really will have to throw the brake on growth this year as iflation gets steadily out of control, while the slowdown in Europe is now gathering speed more rapidly than the one in the United States. Goldman Sachs Group today cut its estimate for Japanese growth in 2008 arguing that slower export demand has put the risk of a recession in Japan at a "danger level". Goldman cut their growth forecast to 1 percent from 1.2 percent and said the Bank of Japan will have to forego any interest rate increases until next year. I would go further. I would say that a recession in Japan is now a foregone conclusion. The only real question is how deep and for how long. 1% growth may well be on the optimistic side, and I would start out at 0.5% and subject to downward revision. On the BoJ, as Claus says, it isn't so much that they won't raise as when are they likely to cut, and when will we be back (yes, that dreaded word) to ZIRP.

Japan has had three recessions since the country's stock and property bubble burst in the early 1990s. The first lasted 32 months from March 1991 to October 1993, while the second dragged on for 20 months from June 1997 to January 1999. The most recent recession was in the 14 months from December 2000, following the bursting of an information-technology boom. So all the indiactions are that this recession will not be a short affair. It needs to be borne in mind that each time round now Japan's population is older, and the fragility of the underlying situation proportionately greater.

As Claus was indicating in his recent post, there is probably now going to be a certain monotony in the data here, as it all moves - sometimes more slowly and sometimes more quickly - in the same direction. The centre of action is now likely to move to the political stage and to following how the Japanese population react to yet another disappointment.

``We project weaker-than-expected growth in the first half of 2008 owing to an inevitable, moderate slowdown among emerging economies,'' said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs in Tokyo.

Talking Japan

I am sure most of our readers are already familiar with the other big Japan watching site out there run by Ken Worsley and its timely analysis of the economic and political situation in Japan. Now Ken, alongside co-host Albrecht Stahmer, has also decided (the podcast has been running since March 2007 actually) to bring the Japan economic/business news and commentary to the podcasting media over at Transpacificradio.com under the seal of Bizcast Japan. Over the course of 2007 ten editions have been published and in their latest bumper installment Ken and Albrecht look forward to the issues within the realm of Japanese economics, business and society which are likely to rear their heads in 2008. Here is their written intro ...

It’s the end of the year, and nothing could sum up Japan’s biggest business stories of 2007 better than sorting them into a top ten list - except for sorting them into a top seven list and discussing them here on BizCast.

Along with a few honorable mentions, co-hosts Albrecht Stahmer and Ken Worsley discuss Krispy Kreme, Nintendo’s domination of the video game market, Burger King, Fast Retailing’s failed bid for Barney’s, the collapse in housing starts, WiMax, Toyota outselling General Motors in the first quarter of 2007, Japan’s demographic crunch, bad fiscal policy, Nova’s bankruptcy, corporate governance, scandals in the food industry, Steel Partners, J-SOX, the widening gap between income in urban and rural Japan, the Mega Mac, Triangular Mergers, the increase in land prices, Sony’s new war chest, and Scott Callon’s shareholder revolt.

Which made the top 7 of ‘07? You’ll have to listen to find out. This special double release clocks in just under 70 minutes.

Alby and Ken would like to express many thanks to everyone who has listened to the first ten episodes of BizCast Japan this year. We’ll be back again in January, and we’re sure the business news will stay just as exciting to follow, analyze and discuss.

The podcast(s) is (are) well worth a listen and I encourage our readers to tug this one firmly into their RSS readers for further reference as we move forward in 2008, I know that I will.