By Lily Nonomiya
April 11 (Bloomberg) -- Japan's machinery orders fell a more-than-expected 5.2 percent in February, highlighting concern among manufacturers that export growth may slow this year.
Non-government orders, excluding shipping and utilities, declined to 1.04 trillion yen ($8.7 billion) from a month earlier, the Cabinet Office said in Tokyo today. The median estimate of 31 economists surveyed by Bloomberg News was for a 0.4 percent drop.
Fujitsu Ltd. and NEC Electronics Corp. plan to cut spending by almost a third this fiscal year to prepare for a slump in orders for chips used in cameras and game consoles. Orders made by non-manfacturers rose, signaling service companies including Tokyo Electric Power Co. and Central Japan Railway Co. may drive business investment in the world's second-largest economy.
``Capital investment will remain sluggish in the first half of this fiscal year because spending by manufacturers is losing steam,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. ``However, spending by non- manufacturers will probably offset such a slowdown and keep supporting the country's business investment overall.''
The yen traded at 118.93 per dollar at 11:01 a.m. in Tokyo compared with 119.11 before the report was published. The yield on Japan's 10-year bond fell 2.5 basis points to 1.655 percent.
Orders for electronic machinery such as semiconductor testing equipment led the declines, falling 29.7 percent, the biggest drop in almost nine years.
Fujitsu, NEC Electronics
Fujitsu, Japan's fifth-largest chipmaker, said April 4 it will reduce spending on semiconductors about 30 percent this fiscal year because of slowing demand for chips used in consumer electronics. NEC Electronics will trim spending at the same rate.
Machine orders by non-manufacturers increased 5.3 percent, led by utilities companies, the government said.
Tokyo Electric Power, Asia's biggest utility, will boost investment over three years starting this month to build power plants and expand electricity transmission lines. It plans to increase spending 23 percent this year. Central Japan Railway, also known as JR West, said last month it will increase spending the most in eight years to replenish old cars and boost safety.
``Growth, and with it employment and business investment, are clearly rotating away from the manufacturing sector toward the non-manufacturing sector,'' said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. ``The recent Tankan survey highlights this.''
Tankan Survey
The Bank of Japan's Tankan business survey last week showed the nation's largest service providers, or those with more than 1 billion yen in capital, plan to boost spending 3.1 percent this year. An increase would mark the third straight year of gains, the longest since 1991. Manufacturers said they'll increase outlays 2.5 percent, faster than economists estimated.
``We saw strong spending estimates from the Tankan, but that could change depending on the outlook for exports,'' said Junichi Makino, a senior economist at Daiwa Research Institute in Tokyo. ``Last year's spending plans were driven by exporters so a stall in shipments is going to have a significant impact on capital spending in 2007.''
Japan's export growth slowed to 9.7 percent in February, about half the pace of January, and the prospect of a global slowdown caused manufacturers to reduce production for a second month in February, the first back-to-back drop in a year.
Bank of Japan Governor Toshihiko Fukui and his policy board colleagues kept borrowing costs on hold for a second month yesterday, maintaining the key overnight call rate at 0.5 percent. Fukui remained optimistic about the outlook for spending and overseas demand.
BOJ's Fukui
Spending plans in the Tankan ``were solid given that they were estimates made at the start of the fiscal year and followed double-digit spending increases in the previous year,'' Fukui told reporters after the rates decision. Capital spending projections tend to be conservative in the March survey and are upgraded throughout the year.
Other sections of today's report signaled global demand remains intact. Orders for Japanese machinery overseas rose 24 percent in February, more than double the pace in January, alleviating concern global growth is stalling, said Jesper Koll, chief economist at Merrill Lynch & Co. in Tokyo.
Machinery orders are a leading indicator of spending as measured by gross domestic product. Economists say orders are placed three to six months before they're used to build factories, product lines or equipment.
To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
Last Updated: April 10, 2007 22:10 EDT
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