July 2016 Machinery Orders

◆According to statistics for machinery orders in July 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the second consecutive month by +4.9% m/m, while also exceeding market consensus at -2.9%. The figure represents a good start towards achieving the Cabinet Office’s outlook of +5.2% q/q for the Jul-Sep period.

◆Looking at orders by source of demand in July, the manufacturing industries grew a small amount for the second consecutive month by +0.3% m/m. Non-manufacturing orders (excluding ships and electric power) also grew for the second consecutive month by +8.6% m/m. Overseas orders declined for the first time in two months by -11.7% m/m.

◆Machinery orders, the leading indicator for capex, are expected to win moderate growth in the future. With supply and demand for labor remaining tight, investment in rationalization and labor-saving devices is likely, while at the same time, the non-manufacturing industries are expected to carry out investment in transport and distribution infrastructure. However, the slowdown of the world economy and the growing tendency toward a strong yen/weak dollar situation will likely effect domestic demand, and there is the growing sense that corporate earnings are about to peak out. In this context we must keep in mind the possibility that corporations may therefore become more cautious as regards capex spending.