August Machinery Orders

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified) saw the first m/m gain in three months in August (up 5.4%), overshooting consensus expectations (up 2.5%). They saw the second consecutive monthly gain on a three-month moving average basis, confirming the underlying uptrend continues.

◆Manufacturing orders increased 0.8% m/m, the fourth consecutive monthly gain. Those from oil/coal product makers surged (up 223.2%). However, it is a reflection of a large-scale project and should be discounted to some extent. Non-manufacturing orders (excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified) saw the second monthly gain in a row (up 6.2%).

◆Overseas orders saw the second m/m gain in a row (up 22.4%). Looking at exports of general machinery in the Trade Statistics (Ministry of Finance), those to the EU and China continue to improve. Thus, overseas orders will likely continue to grow.

◆As a whole, machinery orders continue to recover. While CAO projects a decline of 5.3% q/q for machinery orders in Jul-Sep 2013, the first slide in two quarters, this would transpire if they decline 29.0% m/m in September. If they decline 14.1%, they would post the second consecutive q/q gain in Jul-Sep, an easy hurdle to clear. We believe the second consecutive quarterly advance is a very likely scenario.