September Machinery Orders

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities) saw the first m/m slide in two months in September (down 2.1%), undershooting the consensus expectation (down 1.8%). However, they saw the third consecutive monthly gain on a three-month moving average basis, confirming that the underlying uptrend continues.

◆Manufacturing orders saw the fifth consecutive monthly gain (up 4.1% m/m). Non-manufacturing orders (excl. those for shipbuilding and from electric utilities) saw the first slide in three months (down 7.0% m/m), driven by downward turns for those from the financial/insurance industry (down 27.8%), agriculture/forestry/fisheries (down 26.2%), and the construction industry (down 26.7%).

◆Overseas orders saw the third m/m gain in a row (up 12.1%). In Trade Statistics (Ministry of Finance), ongoing improvement in exports of general machinery to the EU and China continues, meaning overseas orders will likely continue advancing.

◆CAO projects the first slide in three quarters for machinery orders in Oct-Dec 2013 (down 2.1% q/q), a projection whereby a third gain in a row for manufacturing orders (up 0.6%) is unlikely to offset a decline for non-manufacturing orders (down 3.5%). Nevertheless, this projection of negative q/q growth would only transpire if overall orders declined a big 1.2% m/m each month from October to December. As a matter of fact, overall orders would still post a positive q/q figure for Oct-Dec even if there was a decline of 0.1% m/m each month, an easy hurdle to clear. Hence, we believe a third consecutive quarterly advance in Oct-Dec 2013 is a very likely scenario.