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Monday, March 11, 2013 8:08 PM

Japan Machinery Orders Fall 13%, Median Expectation Was 1.7% Decline

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Bloomberg reports Japan Machinery Orders Fall 13% in Sign of Limits on Investment.

The decline from the previous month, announced by the Cabinet Office today in Tokyo, compared with the median estimate in a Bloomberg News survey of 26 economists for a 1.7 percent fall.

Today’s data are a reminder that business investment will not drive the recovery, said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong.

“Looking ahead, we expect accelerating consumption, residential and public investment,” Devalier said. Devalier cautioned against reading too much into a single month of “very volatile” data.
I understand the caution about volatility of large orders, but the rest of what Devalier says is suspect.

Have demographics suddenly changed? The answer to that question is clearly "no", so what reason is there to believe residential investment will be on the rise?

What about public investment? Japan has a debt-to-GDP ratio approaching 250%, and that is the highest ratio of all developed nations. Japan achieved that dubious distinction because it squandered money on "public investment".

Since stupidity often strikes multiple times, I would not totally rule out a surge in public investment, however, I rather doubt it's coming. Recall that Japan's government currently seeks massive tax hikes to pay for what it has already squandered. Moreover, Japanese citizens do not want those hikes. Would they stand for more hikes for more bridges to nowhere?

Accelerating consumer consumption? Why?

I suspect Devalier believes Keynesian claptrap that rising prices are a good thing, but I beg to differ. People do not in general buy things just because the price is going up (there is only so much space to store things). Nor do people avoid buying things simply because prices are falling. If the latter was the case, no one would have bought a computer or a flat screen TV for years.

If Japan gets the price inflation it seeks, but exports do not rise enough to pay for rising energy costs, Japanese savers will be royally screwed (but the stock market may do well, especially in nominal terms).

Stock market aside, this is a very dangerous situation Japan is in, and for the nation as a whole, it's highly likely to end badly.

Mike "Mish" Shedlock

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