July Machinery Orders

◆According to statistics for machinery orders in July, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the first time in four months by +8.0% m/m while at the same time exceeding market consensus (+4.1%). Non-manufacturing (excluding ships and electrical power) grew for the second consecutive month at +4.8%, while manufacturing grew for the first time in two months at +2.9%.

◆The Cabinet Office forecast for the Jul-Sep 2017 period sees private sector demand (excluding ships and electrical power) up by +7.0% q/q. Looking at orders by source of demand we see manufacturing down by -1.8% and non-manufacturing (excluding ships and electrical power) up by +13.5%. Non-manufacturing is showing signs of making a comeback, but the hurdle is high, requiring performance of +14.6% in comparison to July performance in the months of August and September.

◆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, but although investments in maintenance and repair appear promising, propensity to invest in capacity increase is not great. 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.