Published monthly by the Cabinet Office. Updated till the month of January 2017 (published on March 13th, 2017).
Recent Data Trend
Japan’s core machinery orders fell by 3.2% month on month (MoM) in January, following the 2.1% expansion in December. The Japanese government revised its seasonally adjusted series and before the revision, the core machinery orders were reported to have grown by 6.7% MoM in December, Broadly speaking, core machinery orders have been zigzagging without a discernible direction in the past 2 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 remains cautious in their investment decisions in Japan. The stagnation in capital expenditure is of course not for the shortage of funds. A comparison of the level of capital expenditure and corporate profits show that corporate managers are unusually cautious in their capital spending despite the high profitability they are currently enjoying.
In our view, while the recent yen depreciation and the rally in the stock markets must have had a positive influence on the business conditions in Japan, it is unlikely to significantly boost capital investments. We expect machinery orders to remain range-bound, until a shock, either positive or negative, provides a new direction.
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.
Corporate managers cautious in directing cash-flow to investment
Level of core machinery orders
Source: Cabinet Office, JMA.
The Next Release Date: April 12th, 2017.