January Machinery Orders

◆According to statistics for machinery orders in January 2014, the leading indicator for domestic capex, private sector demand (excluding shipbuilding and electric power), grew for the first time in two months, recording an m/m advance of 13.4%, considerably exceeding market consensus (+7.1%). The three-month moving average was also up, a sign that machinery orders, which had been treading water for some time, have entered a growth trend. While machinery orders did stumble momentarily last month, they made a quick comeback, again affirming their return to a growth trend.

◆As for performance by source of demand, manufacturing industries registered m/m growth of +13.4%, registering an advance for the first time in two months. Non-manufacturing orders (excluding shipbuilding and electrical power) also registered m/m growth for the first time in two months at +12.1%. A broad range of industries in the non-manufacturing category won m/m growth, leading to the generally positive results.

◆Overseas orders achieved m/m growth for two consecutive months at +2.7%. However, when the numbers are averaged out, this is only moving sideways. Even so, the outlook clearly calls for a growth trend in the future as overseas economies increasingly recover.

◆We believe that Jan-Mar 2014 machinery orders will continue in a growth trend. Both the manufacturing and non-manufacturing industries show corporate business results as clearly improving, while operating rates of production facilities continue to increase. This provides plenty of material to support an increase in capex. Although a reactionary decline in personal consumption and housing investment will be unavoidable after the raising of the consumption tax, capex is still expected to provide the main impetus for further growth after the increase has gone into effect.