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High – capital spending Japanese capital spending reports prove stable economy

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High – capital spending

Japanese capital spending reports prove stable economy

Bloomberg News 7/1 (“Japan Manufacturer Sentiment Reaches Two-Year High,” 7/1/10,
July 1 (Bloomberg) -- Sentiment among Japan's largest manufacturers rose to a two-year high, signaling Europe's debt crisis has yet to undermine their confidence in the global recovery. The quarterly Tankan index of sentiment at large manufacturers climbed 15 points in June to plus 1, the Bank of Japan said in Tokyo today. A positive number means optimists outnumber pessimists. Large companies plan to increase capital spending 4.4 percent in the year ending March 31, the first gain in three years. The report echoes evidence across Asia that the region that has led global growth remains resilient to the European crisis, with exports advancing from China to Thailand. At the same time, today's data underscore the importance of overseas demand to Japan's recovery, coming after figures this week showed domestic demand muted by rising unemployment and falling wages. "Exports, mainly to China and other developing Asian nations, are in good shape," cushioning any impact from Europe's debt woes, Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo, said before the report. "The horizon of Japan's recovery is broadening, even though the pace of growth will likely moderate amid deflation."

High – bond advances

Stable Japanese economy—big bond advance shows

Seki 7/2 (Yasuhiko—writer for Bloomberg Businessweek, “Japanese Bonds Head for Biggest Weekly Advance Since November,” 7/2/10,
July 2 (Bloomberg) -- Japanese bonds headed for the biggest weekly gain since November as signs the global recovery is slowing boosted demand for government debt. Benchmark yields were near the lowest level since August 2003 before reports that economists said will show U.S. payrolls fell for the first time in six months and Japanese machinery orders declined. Bonds were little changed today on speculation some investors sold the securities to prepare for 2.8 trillion yen ($31.9 billion) of debt sales next week. “Risk aversion is back in play as a series of economic data cast concerns about the sustainability of a rapid recovery,” said Hirokata Kusaba, a senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “Bond yields will stay low amid increased uncertainties about growth prospects.” The yield on the benchmark 10-year bond fell 7.5 basis points this week to 1.07 percent as of 1:31 p.m. in Tokyo, at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The 1.3 percent bond due June 2020 gained 0.681 yen to 102.068 yen. The yield, which climbed half a basis point today, has dropped the most since week since the five days to Nov. 13. Ten-year bond futures for September delivery gained 0.71 this week to 141.77 at the Tokyo Stock Exchange. The Nikkei 225 Stock Average has lost 5.6 percent this week, the biggest decline since the period ended May 21. This week’s gain in bonds was tempered before the Ministry of Finance sells 10- and 30-year debt next week. The government will auction 2.2 trillion yen in 10-year securities on July 6 and 600 billion yen of 30-year bonds two days later. “The coupon on 10-year bonds may be lowered to 1.1 percent, which is the lowest since 2003,” said Akitsugu Bandou, senior economist in Tokyo at Okasan Securities Co. “A lower coupon may throw cold water on investor demand for new bonds.” Primary dealers, companies that are required to bid at government debt sales, often reduce holdings of bonds before an auction in case prices decline before they can pass on the securities to investors. Ten-year yields may surge to 1.75 percent by year-end as the nation’s economic recovery proves resilient, according to Nikko Cordial Securities Inc. “I’m seeing bubble signs increasingly,” Shinji Nomura, chief debt strategist in Tokyo at the unit of Japan’s third- largest banking group, said yesterday. “The economy continues to recover gradually, but yields have dropped as if taking into account a new recession. That’s widened a gap between yields and the economic outlook.” The Bank of Japan’s quarterly Tankan survey, released yesterday, gained 15 points to plus 1 in the second quarter, meaning optimists outnumbered pessimists for the first time in two years. “Judging from the Tankan’s results, I see no need for the BOJ to move toward additional easing,” Nomura said. The BOJ in December unveiled a credit program that it doubled to 20 trillion yen. Last month, Governor Masaaki Shirakawa and his policy board introduced a 3 trillion yen program aimed at encouraging lending to businesses. The central bank has held its benchmark interest rate at 0.1 percent since December 2008. The difference in yield between 10- and 20-year bonds narrowed to 66.5 basis points, the least since July 2009, as investors bought longer-maturity debt. “We see better investment opportunities in longer-dated bonds, which have lagged behind the recent rally at the shorter- end of the yield curve, said Akio Kato, team leader of Japanese debt in Tokyo at Kokusai Asset Management Co., which runs the $38.5 billion Global Sovereign Open fund. Twenty-year yield dropped 14 basis points this week to 1.735 percent. A yield curve is a chart that plots the yields of bonds of the same quality and different maturities. It steepens when yields on shorter-maturity notes fall, those on longer-dated bonds rise, or both happen simultaneously.

Low – general

Japan’s economy falling—multiple indicators prove

Monahan 7/9 (Andrew—The Wall Street Journal correspondent, “Japan's Upturn Loses Steam, Data Indicate,” 7/9/10,
TOKYO—Fresh signs that Japan's economic recovery may be losing momentum emerged Thursday, as a gauge of future business investment fell, the broadest measure of the country's trade slipped, banking lending continued to decline, and worker sentiment deteriorated. The results highlight how Japan, which relies on exports to fuel its growth, remains vulnerable to a slowdown in the global economy. The apparent cooling of Japan's recovery, moreover, could hurt Prime Minister Naoto Kan and his ruling Democratic Party of Japan in an Upper House election this Sunday. Core machinery orders fell 9.1% on month in May, the sharpest drop since August 2008, the Cabinet Office said Thursday. That was the first fall in this leading indicator of capital spending in three months, and came after orders rose 4.0% in April. The result was much worse than the median forecast for a 3.0% decline in a survey of economists by Dow Jones Newswires and Nikkei. The weakness shows that "firms are not likely to add to their business investment actively in the near term as there is still the risk that economic growth will be hampered due to a possible slowdown in overseas economies," said Norio Miyagawa, an economist at Mizuho Securities Research & Consulting. Analysts said one factor in the fall was likely the concern firms had in May that Europe's sovereign debt woes could continue to roil global financial markets and push down trade. Another factor in the fall, they said, was the strong yen, which eats into profits of exporters by making their products more expensive overseas and diminishing revenue sent back to Japan. The Bank of Japan's quarterly tankan business-sentiment survey showed big manufacturers and non-manufacturers plan to increase capital expenditure by 4.4% in the fiscal year started in April. But the strong yen could complicate that outlook, analysts said. While stressing that the machinery order data are volatile and that May's fall likely doesn't change expectations for gradual recovery to continue, Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, said that the strong currency could prompt firms to spend less. "Many manufacturers rely on exports, so they are particularly sensitive to the strong yen," Mr. Nagahama said. Separate data released Thursday by the Ministry of Finance showed that Japan's current account surplus fell 8.1% on year to 1.205 trillion yen ($13.7 billion) in May, as export growth slowed due in part to the fading effects of economic stimulus measures overseas. The lower surplus in the current account, the broadest measure of Japan's trade with the rest of the world, came as the trade surplus fell for the first time in a year, dropping 0.6% to 391.0 billion yen, the data showed. Exports rose at their slowest pace in five months. While overseas shipments were still up a solid 33.8%, that represented a slowdown from April's 42.7% rise. Meanwhile, lending by banks excluding credit unions fell 2.1% on year in June, after dropping at the same pace in May, data released by the Bank of Japan showed. The continued fall reflected the still-low demand for borrowing for investment among Japanese firms, analysts said. While that was due in part to greater liquidity among companies whose profits have rallied, it also showed that overall capital expenditure remained low, analysts said. Thursday's data follow other signs in recent weeks that Japan's economy may be losing some steam, as factory floors recently dialed down production and consumers remain reluctant to spend. Industrial production fell 0.1% in May, for the first fall in three months, data last week showed. The jobless rate worsened to 5.2% in the month, from 5.1% in April, while household spending dropped unexpectedly by 0.7% on year in May, separate data showed last week.

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