April Machinery Orders

◆According to statistics for machinery orders in April, 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 -3.1% m/m, defying market consensus at +0.5%. Manufacturing orders grew for the third consecutive month at +2.5% m/m, but non-manufacturing (excluding ships and electric power) suffered a decline for the second consecutive month at -5.0%, pulling down overall results along with it.

◆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%. Looking at April results, we see that manufacturing registered growth, while non-manufacturing orders declined less than originally expected. Non-manufacturing orders appear to be taking a breather, and this is the one worrisome point.

◆Machinery orders, the leading indicator for capex, are expected to experience ups and downs in the future. If operating rates in the manufacturing industry continue their growth trend due to the increase in exports encouraged by recovery in the world economy, this should also encourage more aggressive corporate capex. 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. We expect computers, conveying, elevating, and materials handling machinery, and industrial robots to do well in the future due to investments in labor saving equipment.