February Machinery Orders

◆According to statistics for machinery orders in February 2014, the leading indicator for domestic capex, private sector demand (excluding shipbuilding and electric power), suffered a decline for the first time in two months, falling 8.8% m/m, considerably underperforming market consensus (-2.6%). The three-month moving average was also down for the first time in two months, indicating that machinery orders seem to have taken a short break from the growth trend previously seen. It should be noted that machinery orders tend to fluctuate quite a bit, so single month results should be given a broad interpretation.

◆As for performance by source of demand, manufacturing industries registered a m/m decline for the first time in two months at -11.9%, while non-manufacturing orders (excluding shipbuilding and electrical power) declined for the first time in two months at -8.4% m/m.

◆Overseas orders achieved m/m growth for three consecutive months at +2.4%. Growth continues due to the recovery in overseas economies, especially in the US and EU.

◆The CAO projected the first decline in four quarters in its Jan-Mar 2014 outlook, with private sector demand (excluding shipbuilding and electrical power) seen down 2.9% in comparison with the previous period. Results may already hit that level in March, having recorded -2.5% m/m as of this point. In order to achieve growth for the Jan-Mar period in comparison with the previous period, March results would have to be +6.7% m/m. Hence, we believe that Jan-Mar private sector demand (excluding shipbuilding and electrical power) will remain stagnant.