Japan’s core machinery orders fell for the second consecutive month by 3.6% month on month (MoM) in May 2017. Orders from manufactures did rise by 1.0% MoM, but orders from non-manufacturers excluding volatile sectors fell by 5.1% MoM. Core machinery orders have been zigzagging without a discernible direction in the last two years.   

Machinery orders is a leading indicator for private capital expenditure in Japan. The zigzag in the core machinery orders show that corporate managers in Japan are still cautious in their investment decisions despite the high profits they are apparently enjoying. In the first quarter of 2017, corporate profits rose by 26.6% year on year to reach a historical high of 20.4 trillion Yen. 

The recent yen depreciation and the rally in the stock markets must have had positive influences on corporate sentiments in Japan. However, apparently they were not enough to sway the mind of corporate investment managers into making investment commitments. 

Brief overview of “Machinery orders”:

Machinery orders tracks orders received by 280 machinery makers in Japan. The results are published monthly, with a quarterly survey for orders outlook published together with March, June, September and December results. Orders are categorized by the source of orders, namely the public sector, private domestic sectors, overseas as well as agencies that supply machinery to SMEs. Orders from private domestic sectors are considered to be an important leading indicator for domestic capital investment. As orders from power generators and shipping industries tend to be extremely volatile, private domestic orders excluding these two industries are considered as core machinery orders. It is important to note that even the core machinery orders are still highly volatile, oscillating from month to month. In the recent years, the core machinery orders tend to lead private capital expenditures by 2-3 months.