December 2016 Machinery Orders

◆According to statistics for machinery orders in December 2016, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the first time in two months by +6.7% m/m, while at the same time exceeding market consensus at +3.0%. As a result, private sector demand (excluding ships and electrical power) fell by only -0.2% q/q for the Oct-Dec 2016 period, exceeding the Cabinet Office forecast of -5.9% for the period.

◆Looking at orders by source of demand in December, the manufacturing industries grew for the second consecutive month at +1.0% m/m, though in the balance manufacturing is seen as marking time considering the trend in orders received for the industry. Non-manufacturing orders (excluding ships and electric power) grew for the first time in two months by +3.5% m/m. The trend for orders in non-manufacturing maintains a relatively high level, but as of this point in time, performance continues to experience ups and downs.

◆Machinery orders, the leading indicator for capex, are expected to gradually expand in the future. Positive factors providing underlying support for machinery orders include the high level of recurring profits and investments in rationalization and labor-saving devices due to the fact that supply and demand for labor remains tight. The sense of a shortage in production facilities is growing stronger as the manufacturing industry experiences an expansion in exports due to the recovery in the world economy. Meanwhile, the non-manufacturing industries are expected to carry out investments in transport and distribution infrastructure.