14 January 2003, 12:08  Japan's November Machinery Orders Fall 0.2% From Oct.

Tokyo, Jan. 14 (Bloomberg) -- Japanese machinery orders, an early indicator of business investment, unexpectedly fell in November as companies such NTT DoCoMo Inc. curb spending in anticipation of a slowing economy. Core machinery orders, which exclude shipping and utility companies, fell 0.2 percent from October, seasonally adjusted, to 828.1 billion yen ($6.97 billion), the Cabinet office said. Orders had been expected to rise 1.8 percent, according to the median forecast of 26 economists in a Bloomberg News survey. The world's second-largest economy is slowing as manufacturers curb production and spending, the government said in its monthly economic report in December. Proposed tax cuts for research and development may not be enough to sustain a recovery from Japan's third recession in a decade, economists said. ``Capital spending will fall as the economy slows,'' said Mikihiro Matsuoka, a senior economist at Deutsche Securities Ltd. ``Tax cuts to businesses aren't really going to spur spending, as there just aren't companies that have the luxury to do so under current economic conditions.'' The No. 245 bond, which carries a 0.9 percent coupon and matures in 2012, fell 0.045 to 100.273 as of 5:19 p.m. in Tokyo. Its yield rose half a basis point to 0.870 percent. A basis point is 0.01 percentage point. The decline in orders was led by makers of electrical machinery, metal products and autos, today's report showed. Orders for ships and equipment for utilities are excluded because their size tends to skew the results.
Tax Cuts
Prime Minister Junichiro Koizumi said last month that the government would cut taxes on business investment by 1.2 trillion yen in the fiscal year starting April 1. Such incentives may not spur investment by companies such as NTT DoCoMo and chipmaker Fuji Electric Co. NTT DoCoMo, the world's second-largest mobile-phone operator, said it would cap spending on new equipment at current levels in the fiscal year starting in April because expansion wouldn't bolster its high-speed wireless Internet service. Fuji Electric, which makes electrical machinery, semiconductors and integrated circuits, said next fiscal year's increase in investment wouldn't match this year's 14 percent growth. ``We're done for now,'' said Fuji Electric spokesman Tadahiro Fukunaga. ``The government needs to set policies to stem falling prices'' instead of cutting taxes, he said.
Inflation Target
Four years of sliding prices have cut into profits and made it harder for Japanese companies to repay debt. As a result, companies are reducing investment and paying off debts before they grow even larger. Bank of Japan governor Masaru Hayami has resisted political pressure to help companies by adopting an inflation target. Under such a policy, the bank would set a specific goal for price increases and pump money into the economy until the goal is met. Credit-rating company Moody's Investors Service today endorsed the idea of an inflation target, saying it would have ``positive longer-term implications for the country's credit ratings.'' Koizumi is preparing to nominate a successor to Hayami, whose five-year term ends on March 19, and the next governor is more likely to adopt an inflation target, Moody's said. Moody's last May lowered its rating of Japan's yen- denominated bonds two notches to A2, saying Koizumi wasn't doing enough to reduce national debt, which will rise to about 140 percent of gross domestic product by March, the highest in the developed world. From a year earlier, machinery orders fell 7.2 percent, the 17th drop in 18 months. //www.quote.bloomberg.com

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