September Machinery Orders

◆According to statistics for machinery orders in September 2015, the leading indicator for domestic capex, private sector demand (excluding shipbuilding and electrical power), were up for the first time in four months at +7.5% m/m, while exceeding market consensus (+3.1%). On the other hand, the Cabinet Office outlook for Jul-Sep period machinery orders saw +0.3% q/q growth for private sector demand (excluding shipbuilding and electric power), while actual performance fell considerably below the original outlook by -10.0%.

◆Looking at orders by source of demand in September, the manufacturing industries suffered declines for the fourth consecutive month at -5.5% m/m. The industry peaked out in May after special projects gave it a major boost, and the downward trend still continues. Non-manufacturing orders (excluding shipbuilding and electric power) achieved m/m growth for the first time in three months at +14.3% m/m, and for the time being appears to have pulled out of the continuing declines suffered since July.

◆Machinery orders are expected to continue marking time in the future. According to the September BOJ Tankan, FY2015 capex plans of major corporations in all industries are on the relatively high side in comparison to the past tendency of downward revisions. However, considering the trend in machinery orders over the past several months, there are still possibilities that corporations may put off their capex plans due to stagnant exports arising from the slowdown in overseas economies and sluggish growth for production. It should be noted that this tendency could get worse, depending on the direction taken by overseas economies. At the same time, however, the improvement in corporate earnings in association with cheap crude oil which has continued since last summer is expected to provide underlying support for corporations’ willingness to spend on capital expenditure.