February Machinery Orders

◆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 first m/m gain in two months in February (up 7.5%), overshooting consensus expectations (up 6.9%). On a three-month moving average basis, however, they saw a second consecutive m/m slide. In addition, non-manufacturing orders, which account for more than 60% of private sector orders, have been sluggish. Thus, the underlying trend has likely been flagging.

◆By demand source, manufacturing orders posted the first m/m advance in two months (up 8.6%). Non-manufacturing orders (private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified) posted the first m/m gain in three months (up 0.6%). A boost seen for orders from materials industries, as well as that seen for those from electrical machinery, pushed up overall orders. Despite a gain, non-manufacturing orders were unfavorable, as declines were seen for those from many industries.

◆Overseas orders posted the first m/m gain in three months (up 8.0%). The export value of general machinery has turned to an increase, mainly supported by increases in shipments to the US. This suggests that overseas orders have been on a moderate uptrend after bottoming in August 2012.

◆GDP-based capex is likely to have turned to an increase in Jan-Mar 2013. However, given the ongoing weakness in machinery orders, and considering the tendency that export volume will not begin to increase until about six months later from a shift to a weaker yen, capex will not see a full-fledged recovery before 2H 2013. Thereafter, capex will continue to increase moderately, because exports will likely increase, reflecting the recovery in overseas economies and the effect of the recent shift to a weak yen being felt, and because domestic demand will likely grow steadily reflecting rises in wages.