August Machinery Orders

◆Machinery orders remain at low level: August machinery orders (Cabinet Office; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified; leading indicator of domestic capex) declined 3.3% m/m, the first slide in three months. The slide was as expected, albeit wider than the market consensus (down 2.3%). Orders saw the first gain in four months on a three-month moving average basis but the value of orders remained at a low level, meaning the underlying weakness continues.

◆Manufacturing orders plunged, partly reflecting reactionary slide: By demand source, manufacturing orders plunged 15.1% m/m, but non-manufacturing orders increased 3.6%. Orders from 11 out of 15 manufacturing industries declined m/m, while those from five out of 12 non-manufacturing industries declined--manufacturing orders drove the overall decline. Overseas orders declined 14.7% m/m, accelerating the slowdown amid the economic doldrums in China, the major destination of Japanese exports.

◆Jul-Sep likely flat q/q: The Cabinet Office survey, released along with June figures, projected Jul-Sep machinery orders would decline 1.2% q/q, the second quarterly slide in a row. If orders declined 4.6% m/m in September, the projection will be met. If they declined 0.9%, we would see positive q/q growth. Thus, the hurdle is not too high for posting an expected or better-than-expected result. While the underlying trend has been weak as a whole, machinery orders will likely be flat q/q in Jul-Sep.