Machine orders shave Japan bulls' horns


Machinery orders fell more than they ever have in a month, but that might be a blip, experts say

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- Japan's economy may not be recovering as fast as Japan bulls hoped, fresh numbers released on Monday show.

Machinery orders were weaker than expected for January, down 15.6 percent over the prior month, when seasonally adjusted.

That was much worse than the 4.7 percent drop expected by a consensus of experts. It was also the largest monthly drop since the current method of compilation began in 1987.

Machinery orders are a "leading indicator," meaning they give a glimpse of future figures to come.

Lagging indicators, such as last Friday's GDP figure for the December 2001 quarter, tend to reflect conditions that have already existed.

Experts say the poor orders are more of a minor setback than a major bursting of the theory that Japan may be on the way back.

"If you were expecting the economy to bottom out pretty soon this is suggesting it will not happen," said Ryo Hino, a Tokyo-based economist with J.P. Morgan.

"But our expectation is that the recovery will come in about June 2Q [second quarter]. It seems our call is still reasonably on track."

Private spending not reliable

Experts tend to favor leading indicators such as machinery orders and capital spending by businesses in analyzing the Japanese economy.

Personal-consumption figures are often unreliable and many question the way the figures are compiled. The survey may be too detailed to provide reliable information.

Other critics say the family structure in Japan, where many younger people still live at home, makes it difficult to track household spending.

But domestic demand is one of a few missing pieces in the recovery puzzle. On the industrial front, exports seem to have stabilized and business confidence is on the increase.

The machinery orders dent the industrial side of the equation. The size of the drop was particularly surprising.

"Obviously we would have liked to have seen a bit of a firmer number," Hino said. "We had some upsides in the past few months. We had this big drop that brings us back to Step 1."

Observers have been hoping for a recovery in the world's second largest economy. The yen has strengthened on the back of the new optimism about Japan.

Many stock analysts have credited the recent run in Japanese shares with short covering, rather than a fundamental shift in confidence.

Though officials are searching for signs of light after a decade of economic darkness, they have yet to confirm the glimmers.

"It's still very early to say the economy is bottoming out," vice trade minister Katsusada Hirose said at a news conference. "My honest opinion is that we will still be watching movements with concern."

But one set of figures does not make a pattern, either. Experts will be watching for further clues in Japan's industrial output figures, due to be revised on Friday.

Japan's Nikkei index rose 0.28 percent to 11,919.30, another in a series of seven-month highs. The broad Topix index closed up 1.56 percent at 1,125.43.