July 8 (Bloomberg) -- Japanese machinery orders unexpectedly rose in May as companies such as Sharp Corp. bought more equipment to fill rising orders for flat-panel screens. Machinery orders rose 6.5 percent to 932 billion yen ($7.9 billion), seasonally adjusted, from April, the Cabinet Office said in Tokyo. Economists had predicted a 1.5 percent drop, according to the median of 28 forecasts in a Bloomberg News survey. Higher capital spending, which accounts for 14 percent of Japan's economy, may help the nation avoid a fourth recession since 1991, economists said. Large companies plan to raise investment by 4.9 percent this year, the Bank of Japan's quarterly Tankan survey showed last week, compared with a 0.8 percent cut planned in the previous survey. ``The rise in the machinery orders directly reflects a recovery in company earnings and the economy,'' said Akio Yoshino, who helps manage the equivalent of $14 billion in assets at SG Yamaichi Asset Management Co.
The yield on the No. 251 bond, which carries a 0.9 percent coupon and matures in 2013, rose 1 basis point after the report was released to 1.155 percent at 3:55 p.m. in Tokyo. A basis point is 0.01 percentage point. Ten-year yields have more than doubled since touching a record low of 0.43 percent on June 11. The Nikkei 225 stock average rose 1.1 percent to 9898.72 at the 3 p.m. close of trading in Tokyo after rising above 10,000 for the first time since Aug. 27. The Nikkei has jumped more than 30 percent since April 28, when it fell to a two-decade low, on expectations that faster economic growth in the U.S. would fuel earnings growth of exporters such as Tokyo Electron Ltd., the world's second-largest supplier of chip-making equipment.
Ducking Recession
The gain in May was led by a 43 percent jump in orders for electrical machinery, including semiconductors used to make flat- panel displays, today's report showed. Asahi Glass Co., Japan's biggest glassmaker, last month said it will spend 18 billion yen to expand production of components for liquid crystal displays to meet higher demand from customers such as Sharp Corp., Japan's largest maker of flat screens. Sharp said last month that it expects sales of flat-panel televisions to increase 46 percent to 130 billion yen in the year ending March 31. Pentax Corp., a maker of cameras and medical equipment, said last month it would invest 1 billion yen to more than double monthly production at a plant in Tochigi prefecture to 12 million units by the end of March 2004. The machinery orders report adds to evidence that the world's second-largest economy may duck a recession after growing 0.1 percent in the first quarter, the slowest pace in a year.
U.S. Growth
The Bank of Japan's Tankan survey, the most widely watched gauge of business sentiment, showed that companies were the least pessimistic in two years as stock indexes rose, limiting companies' stock losses. Industrial production had its biggest gain in a year in May as Sharp and other exporters anticipated recovery in growth in the U.S., which buys about 28 percent of Japan's exports. The U.S. economy, the world's largest, will expand at a 3.5 percent annual rate this quarter and accelerate to 3.7 percent in the fourth quarter, according to the median forecasts of 60 economists in a Bloomberg News survey. The forecasts are higher than the 1.4 percent pace in the first quarter. The end of the war in Iraq and ebbing of the epidemic of severe acute respiratory syndrome in Asia also encouraged Japanese companies to buy more machinery and equipment in May, said Shuji Shirota, an economist with Dresdner Kleinwort Wasserstein in Tokyo. From a year earlier, machinery orders rose 12.2 percent, today's report showed. The number doesn't include shipping and utilities, which tend to skew the results. //www.bloomberg.com