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Japan Machinery Orders

Core machinery orders, a leading indicator for private capital expenditure in Japan, contracted by 5.1% month on month to 834 billion yen in November 2016.

Published monthly by the Cabinet Office. Updated till the month of November 2016 (published on January 16th, 2016).

Recent data trend:

Japan’s core machinery orders fell by 5.1% in November from the previous month, after a seasonal adjustment. The decline, second largest since April 2016, is mainly due to the non-manufacturing sector (exclu volatile orders) which fell by 9.4% MoM.

The data confirms our view machinery orders and therefore capital expenditure in Japan is likely to remain sluggish despite the improvements we saw in some of the macroeconomic variables in the last few months. If we compare the level of corporate investment to the level of corporate profits, we see that corporate managers are quite 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 be sufficient to boost capital investments. We expect machinery orders to remain range-bound, until a shock, more likely to be negative than positive, 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.

For more information, visit the official government page

Source: Cabinet Office,  JMA.

Source: Cabinet Office, JMA.

Level of core machinery orders

Source: Cabinet Office, JMA.

The Next Release Date: February 9th, 2017.