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TOKYO: Japan said Thursday core machinery orders fell for the first time in three months, adding to fears that high oil prices and weak exports are tipping Asia's biggest economy into recession.
The orders, a key gauge of corporate capital spending, dropped 2.6 per cent in June from the previous month, after a 10.4 per cent rise in May, the cabinet office said.
The drop was not as bad as the market's average forecast for a slump of around 9.5 per cent, but economists found little to cheer about.
Japan appears to have entered a mild recession late last year and whether it will sink deeper will depend on the performance of the US economy, said Hiroshi Watanabe, economist at the Daiwa Institute of Research.
"The chances are that the US economic slump, which is at slow pace at the moment, will enter a full swing late this year and into next year, pulling down the Japanese economy with it," he warned.
He noted that key industries such as automobiles and electrical machinery saw sluggish orders, while only one-off demand in the paper-pulp and shipbuilding sectors spared the headline figure from a major drop.
Foreign demand also fell for the first time in three months, a major negative factor for an economy heavily dependent on exports, Watanabe said.
"It is inevitable that Japan's machinery exports are sagging due to economic slowdowns in the United States and European Union," he added.
Japan's economy has enjoyed a gradual recovery in recent years from recession in the 1990s, but there are concerns that the revival is now stalling due to the worsening global economic climate and soaring commodity costs.
Analysts expect gross domestic product figures due next week to show Asia's largest economy contracted in the second quarter of 2008. The technical definition of a recession is two consecutive quarters of negative growth.
Machinery orders placed by the manufacturing sector in June rose 3.9 per cent from the previous month but orders by non-manufacturers were down 3.3 per cent.
For the April-June period, core machinery orders edged up 0.6 per cent from the previous quarter, after 2.2 per cent growth in January-March, but are forecast to dip 3.0 per cent in July-September, the cabinet office said.
"While the recent decline in oil prices alleviates pressure on corporate profits, the global economy is likely to slow further in coming quarters, with the weakness spreading outside the United States," warned Lehman Brothers economist Hiroshi Shiraishi.
"Under this environment, capital expenditure growth is unlikely to be a driver of growth over the course of this year."
The machinery orders data came a day after the cabinet office announced that the coincident index, which is calculated using industrial output and other economic indicators, turned down 1.6 points in June from May.
The office said then the economy was "deteriorating."
Prime Minister Yasuo Fukuda last week brought in a new top economic team to tackle slowing economic growth and rising oil prices, tasking them with drawing up a package of measures to shore up the economy.
- AFP/yb
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