Japan's Economic Indicator
February Machinery Orders
February orders grow +1.5% m/m. Degree of certainty low for achievement of Jan-Mar period outlook
◆According to statistics for machinery orders in February, 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 +1.5% m/m, while at the same time falling below market consensus at +3.6%. Manufacturing grew by +6.0% m/m in a rebound from the previous month’s major decline, while non-manufacturing (excluding ships and electric power) grew also for the third consecutive month.
◆The Cabinet Office forecast for the Jan-Mar 2017 period sees private sector demand (excluding ships and electrical power) up by +1.5% q/q. However, in order to fulfill this forecast, private sector demand (excluding ships and electrical power) will have to pull in +10.0% in orders received in March in comparison with February performance. Hence the degree of certainty with which this outlook can be achieved is not a high one.
◆Looking at orders by source of demand in February, the manufacturing industries grew for the first time in two months by +6.0% m/m in a rebound from the previous month’s major decline (-10.8% in comparison to December 2016). Our evaluation is that on average, manufacturing is marking time. Non-manufacturing orders (excluding ships and electric power) grew for the third consecutive month at +1.8% m/m. Non-manufacturing orders have experienced ups and downs up to now, but on the whole, the trend in non-manufacturing orders maintains underlying strength.
◆Machinery orders, the leading indicator for capex, are expected to gradually expand in the future. Operating rates in the manufacturing industry have been in a growth trend since the second half of last year due to the increase in exports encouraged by recovery in the world economy. Meanwhile, the non-manufacturing industries are expected to carry out investments in transport and distribution infrastructure with the continuing growth in foreign visitors to Japan, as well as expectations regarding the 2020 Tokyo Olympics and Paralympics.
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