Japan received more bad news on the economy today as a gauge of business investment fell sharply, reflecting cost-cutting measures by companies to survive the financial crisis.
Fears of a return to deflation in Asia's largest economy also grew as prices at the factory gate dropped by the biggest amount on record, reflecting recent plunges in oil and raw material costs as the global economy worsens.
Japan's core machinery orders, a leading indicator of corporate capital spending, dropped 4.4% in October from the previous month, and by 15.5% from the same time last year.
Foreign orders from overseas plummeted 37.2%, reflecting the grim conditions in many overseas economies.
Japan's corporate sector has been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s.
But firms are now cutting back their investment in new plant and equipment in response to the financial crisis, raising fears that the current recession will be deeper and longer than previously feared.
Japan's economy shrank an annualised 1.8% in the third quarter, much worse than initially thought, official figures showed yesterday.
Wholesale prices in November fell 1.9% from the previous month, the third drop in a row and the sharpest on record, the central bank said.
Japan was stuck in a deflationary spiral for years after its economic bubble burst in the early 1990s, cutting into company profits and encouraging consumers to put off spending to get a better bargain in the future.
Inflation hit a decade high 2.4% in July after deflation finally ended following years of zero interest rates. But with energy costs now sinking, many analysts expect a return to falling prices sometime next year.
