Japan Core Machinery Orders Increase Unexpectedly In February

Japan's core machinery orders increased unexpectedly in February, signaling a continued recovery in capital spending which could support the economy that is still grappling with deflation, strong yen and the impacts of last year's earthquake.

The Cabinet Office said Wednesday that the machinery orders received by Japan's private sector firms, excluding the volatile ones for ships and orders from electric power companies, increased a seasonally adjusted 4.8 percent in February. Economists expected orders to fall 0.8 percent following a 3.4 percent gain in the preceding month.

Compared to last year, core machinery orders rose 8.9 percent in February, faster than a 5.7 percent increase in January. Expectations were for much weaker growth of 3 percent.

Core machinery orders are a key indicator of capital spending in the economy. Official data show that in the fourth quarter of 2011, capital spending jumped 7.6 percent on year. This was the largest gain since the first quarter of 2007.

The total value of machinery orders received by 280 manufacturers operating in Japan decreased 14.5 percent in February from the previous month on a seasonally adjusted basis.

Orders from manufacturers climbed 16 percent month-on-month following a 1.8 percent fall in January. Orders from ship building sector soared 263.5 percent on month. Meanwhile, orders placed by automobile manufacturers dropped 5.7 percent.

Machinery orders from the non-manufacturing sector fell a seasonally adjusted 9.4 percent from a month earlier.

In a report in February, the government projected 2.3 percent increase in core machinery orders for the January-March period. According to Cabinet Office data released last month, the economy contracted 0.2 percent sequentially in the fourth quarter. This translates into an annualised contraction of 0.7 percent in real, price-adjusted terms. Capital spending rose 4.8 percent compared to previous three months, in a sign that strong domestic demand will help the ongoing economic recovery.

During the monetary policy meeting on Tuesday, the Bank of Japan refrained from further monetary easing and said that the economy is showing some signs of picking up. In February, the central bank expanded the size of the asset purchase by JPY 10 trillion as strong yen threatened to undermine a steady economic recovery.

Separately, the BoJ reported today that bank lending growth accelerated to 0.8 percent in March from 0.6 percent in February. Average outstanding loans held by the country's major, regional as well as shinkin banks stood at JPY 459.7 trillion at the end of the month. (Provided by RTTNews)

Restructuring Can Help Debt, Low House Prices: IMF

Housing prices are expected to trend low over the medium to long-term, a new report by the International Monetary Fund released Tuesday said.

The cycle of foreclosures and defaults occurring in the U.S. has served to bring down house prices, report leader David Leigh told reporters at a briefing this morning.

The prices are now at or below long-term levels. Without implementing certain programs to combat this cycle, house prices could continue to trend low and could undershoot costs, he continued.

His remarks were supported by findings from the latest World Economic Outlook (WEO) report released today.

"Targeted household debt restructuring policies can deliver significant benefits...can significantly reduce the number of household defaults and foreclosures and substantially reduce debt repayment burdens, at a relatively low fiscal cost," the report stated.

Specifically, the report said comprehensive programs, such as those implemented in the U.S. in the 1930s and in Iceland today, could be models for restructuring policies to use today.

On the positive side, the cycle of foreclosure and default has also lowered household debt back to 2003 levels, Leigh remarked.

This phenomenon may take several more years to occur in Europe, he added, where the number of defaults is much lower.

As for the restructuring programs, the IMF report noted the success of such programs depends on careful design.

"Overly restrictive eligibility criteria or poorly structured incentives can limit the programs' effectiveness. Overly broad programs, on the other hand, can have serious side effects and undermine the health of the financial sector." (Provided by RTTNews)