Japan Machine Orders Surge at Fastest Pace in 7 Years (Update1)

By Jason Clenfield


March 10 (Bloomberg) -- Orders for Japanese machinery rose at the fastest pace in more than seven years in January, a sign demand from emerging markets may help the economy ride out the U.S. slump.

Equipment orders jumped 19.6 percent from December, when they dropped 3.2 percent, the Cabinet Office said today in Tokyo. The median forecast of 36 economists surveyed by Bloomberg News was for a 2.6 percent increase.

The increase supports the Bank of Japan's view that the economy is still expanding even though it slowed temporarily because of a drop in home construction and rising raw-materials costs. The yen's gain to an eight-year high against the dollar last week may leave exporters with less cash to spend and hire.

``Japan's corporate sector is more resilient than expected, backed by robust demand from Asia,'' said Junko Nishioka, an economist at ABN Amro Securities in Tokyo. ``It looks like companies can lead the economy at least in the first quarter.''

The yen traded at 102.40 against the dollar at 9:22 a.m. in Tokyo from 102.29 before the report was published.

Orders for train cars and a steam power generator drove the gains, the Cabinet Office said. Machinery orders, an indicator of capital spending in the next three to six months, had declined for two straight months until January's rebound.

Manufacturing-equipment orders climbed 13.8 percent in January from a month earlier, the Cabinet Office said. Non- manufacturing orders surged 21.9 percent.

Export Growth

Japan's export growth unexpectedly quickened in January, as rising demand for cars and steel from China and Russia made up for falling U.S. sales.

The International Monetary Fund forecasts that the world economy will grow about 4.1 percent this year, faster than the 3.7 percent average of the past quarter century. Emerging markets including China and India will lead growth.

Central Motor Co., a Toyota Motor Corp. subsidiary, plans to build a 49 billion yen ($480 million) factory in Sendai, northern Japan. The factory, the first new Toyota assembly plant since 1993, will employ 1,200 people in a prefecture where the jobless rate is about a full percentage point above the national average of 3.8 percent.

``The appetite for capital spending won't evaporate,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. ``But profits are falling and the outlook for external demand is soft.''

Falling Profits

Corporate earnings fell at the fastest pace in five years in the fourth quarter, a Finance Ministry report showed last week. Capital spending slumped for a third quarter in the last three months of 2007.

The risk of a slowdown this year has investors betting the Bank of Japan will cut interest rates before the end of the year. Traders see a 70 percent chance the bank will lower the key rate from 0.5 percent by December, according to calculations by JPMorgan Chase & Co.

Japan's currency rose as high as 101.43 against the dollar on March 7, the strongest since January 2000, eroding overseas earnings. Crude oil climbed to a record last week.

Yamaha Motor Co., the world's second-largest motorcycle maker, said last week it plans to cut costs as the stronger yen and higher raw-materials prices hurt profit.

``We're taking a double hit with the yen and surging raw material prices,'' Yamaha President Takashi Kajikawa said in a March 6 interview. ``In the second half, we'll step up efforts to reduce costs.''