August 2016 Machinery Orders

◆According to statistics for machinery orders in August 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders declined for the first time in three months by -2.2% m/m, while at the same time exceeding market consensus at -4.7%. Both manufacturing and non-manufacturing suffered declines, for the first time in three months, but on average, machinery orders are seen as continuing the steady undertone shown in recent months.

◆Looking at orders by source of demand in August, the manufacturing industries declined for the first time in three months by -4.0% m/m. Non-manufacturing orders (excluding ships and electric power) also declined for the first time in three months by -1.9% m/m. Overseas orders grew for the first time in two months by +6.8% 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.