Bloomberg News Service
TOKYO New concerns emerged that the worlds second-largest economy may be slipping back into recession after a key sign of capital spending fell yesterday one of the main drivers of economic growth in Japan last year.
In response, the yen hovered near its lowest level in almost 18 months, at about 118.72. Many currency traders and strategists expect it to weaken past 120.
Growth in machinery orders dropped as Japanese companies ordered less in November. Private orders, excluding shipbuilders and electric companies, dropped 2.9 percent, seasonally adjusted from October, the Cabinet Office said.
Economists had expected a 0.1 percent increase after orders rose 8.3 percent in October. Orders rose 22 percent from a year ago.
Machinery orders indicate capital spending in about six months time, and signs of a drop-off suggest the economy might be slowing, or in danger of contracting. Machinery orders expanded for a record five quarters through the three months ended Sept. 30, helping fuel economic growth last year.
Japans economy returned to growth in the first quarter last year after two quarters of contraction at the end of 1999. Gross domestic product rose 0.2 percent in the second and third quarter of 2000, fueled by this spending on factories and offices.
"The swing factor for the economy is undoubtedly" capital spending, said Ron Bevacqua, senior economist at Commerz Securities (Japan) Ltd. "Given low expectations for consumption, government spending and exports, the extent of the slowdown will have a large bearing on overall economic trends."
Capital spending was the sole source of growth in the third quarter last year, when the economy expanded 0.2 percent, the same pace as the second quarter. The economy returned to growth in the first three months of last year after shrinking the previous two quarters.
"The boost to business investment has been the most important driver behind the modest level of economic growth witnessed over this period," said Matthew Poggi, an economist at Lehman Brothers Japan Inc.
Meanwhile, the yen has tumbled about 6 percent against the dollar since the start of December, driven by concern the economy is stalling after Japanese equities had their worst year in a decade in 2000 and bankruptcies hit record levels.
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