Japan machinery orders fall as strong yen clouds outlook

TOKYO (REUTERS) - Japan's core machinery orders fell less than expected in February in a sign that capital expenditure is starting to stabilise, but a strong yen, which can hurt corporate earnings, clouds the outlook.

The 9.2 per cent monthly decline in core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, was less than economists' median estimate for a 12.4 per cent month-on-month fall, Cabinet Office data showed on Monday (April 11).

Japan's policymakers are counting on capital expenditure to create more jobs and raise wages. However, if recent gains in the yen continue, companies could curb investment plans on worries that corporate profits will fall.

"On the whole, capital expenditure is rising gradually, but the momentum this fiscal year may be slower than last fiscal year," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"The Bank of Japan's negative interest rates have not boosted lending, and a strong yen threatens corporate profits." Orders from manufacturers fell 30.6 per cent from the previous month, which was the largest decline on record.

Orders from the services sector rose 10.2 per cent, marking the biggest increase since September.

In January, core machinery orders jumped 15.0 per cent from the previous month, the biggest gain since January 2003, due to large orders from the steel industry, and economists said this led to the pull-back in February.

The Cabinet Office said machinery orders are showing signs of picking up, unchanged from its assessment last month.

The yen has gained more than 10 per cent against te US dollar this year, as investors seek the currency as a safe haven.

A rising yen tends to worry Japanese companies because it lowers exporters' earnings.

The Bank of Japan stunned markets in January by deciding to add negative interest rates to its massive asset-buying programme, but the move has failed to boost stock prices or arrest an unwelcome rise in the yen.