Japan Machine Orders Drop 7.1%, Exports Down 3 Consecutive Months; Predicted Growth or Predicted Mirage?

Bloomberg reports Japan Machine Orders Fall More-Than-Estimated 7.1% as Yen Climbs

Japan?s machinery orders fell at the fastest pace in three months in December as a faltering global economy and gains by the yen dimmed the outlook for exporters.

Bookings, an indicator of capital spending, decreased 7.1 percent from the previous month, the Cabinet Office said in Tokyo today, after surging 15 percent in November. The median estimate of 29 economists surveyed by Bloomberg News was for a 5 percent decline.

Japan?s exports fell for three straight months through December as European leaders grappled with the debt crisis that is driving the euro region into a recession. Spending may rebound as earthquake reconstruction work kicks in and today?s report showed companies forecasting a 2.3 percent increase in orders this quarter.

Japan?s lower house of parliament on Feb. 3 approved Prime Minister Yoshihiko Noda?s 2.5 trillion yen ($32 billion) recovery package from the earthquake and tsunami, the fourth supplementary budget since the disaster. The government forecast in December that Japan?s economy will grow 2.2 percent in the year starting April after a projected 0.1 percent contraction this fiscal year.

The International Monetary Fund estimates that Japan?s economy will grow 1.7 percent this year, compared with a likely 1.8 percent expansion for the U.S. and an estimated 0.5 percent contraction for the euro area.

Predicted Growth or Predicted Mirage?

Spend enough money and you can get GDP to rise. But what about that deficit to the tune of 230% of GDP?

To solve the deficit problem, Japan proposes massive tax hikes. What would tax hikes do for consumer spending? If Japan does pass tax hikes, it could strengthen the Yen. What would a strengthening the Yen do to exports?

Simply put, the estimated growth is a mirage, if it happens at all, and increased government spending is going to cause other problems.

For further discussion, please see Japan Faces Moment of Truth: First Annual Trade Deficit Since 1980; New Trend or Simply the Tsunami Effect?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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