Japan's Economic Indicator
March Machinery Orders

March orders win +1.4% m/m growth. Apr-Jun period seen suffering decline in comparison to previous quarter

May 17, 2017

  • Kazuma Maeda
  • Shunsuke Kobayashi

Summary

◆According to statistics for machinery orders in March, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the second consecutive month by +1.4% m/m, while at the same time falling below market consensus at +2.5%. Non-manufacturing (excluding ships and electric power) suffered a decline for the first time in four months at -3.9% m/m, while manufacturing grew for the second consecutive month by +0.6%, providing a lift for overall results.

◆As a result of March activity, FY2016 private sector demand (excluding ships and electrical power) grew by +0.5% y/y, with manufacturing down by -4.6% and non-manufacturing (excluding ships and electric power) up by +4.3%. Non-manufacturing industry orders managed to bring overall results up, while manufacturing orders did poorly.

◆The Cabinet Office forecast for the Apr-Jun 2017 period sees private sector demand (excluding ships and electrical power) down for the second consecutive quarter by -5.9% q/q. Looking at orders by source of demand we see declines for both manufacturing (-1.1%) and non-manufacturing (excluding ships and electric power) at -9.6%.

◆Machinery orders, the leading indicator for capex, are expected to experience ups and downs 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. If the increase in operating rate continues, corporations may become more aggressive in carrying out capex spending. 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. However, there is always a possibility that a reactionary decline could occur in the future with orders having continued on such a high level until now.

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