December 2012 Machinery Orders

Orders firming up and should advance going forward

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February 07, 2013

  • Masahiko Hashimoto

Summary

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified; leading indicator of domestic capex) posted the third monthly gain in a row in December (up 2.8% m/m), much better than consensus expectations (down 0.8%). On a three-month moving average basis, orders saw the second consecutive monthly gain, confirming the underlying recovery trend. In the Oct-Dec quarter, orders increased for the first time in three quarters (up 2.0% q/q), although falling short of the CAO projection (up 5.0%).


◆CAO projects that machinery orders will increase 0.8% q/q in Jan-Mar 2013, the second consecutive q/q gain. By demand source, while manufacturing orders are expected to post the fourth consecutive quarterly slide (down 0.1%), non-manufacturing orders are anticipated to increase (up 0.4%), driving overall machinery orders.


◆For capex to see a full-fledged recovery, whether those by manufacturers will move toward an uptrend holds the key. Reflecting recent weakness in the yen, the profit environment surrounding manufacturing industries should have improved, providing an incentive to effect capex. Additionally, the environment surrounding capex will likely improve because of government policy measures, including tax breaks for capex in Japan. Thus, going forward, capex will probably gradually gain momentum.

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