September Machinery Orders

◆According to statistics for machinery orders in September, 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 -8.1% m/m. Manufacturing suffered a decline of -5.1%, while non-manufacturing also fell by -11.1%. While the manufacturing industry suffered a reactionary decline in response to the previous month’s major growth (+16.1% m/m in August), it is maintaining its moderate growth trend upheld since the beginning of 2017. Meanwhile, non-manufacturing, which had been showing signs of a comeback until recently, suffered a major decline in September, and is expected to continue marking time.

◆The Cabinet Office forecast for the Oct-Dec 2017 period (excluding ships and electrical power) sees a decline of -3.5% q/q.

◆With the September results, machinery orders (excluding ships and electrical power) have registered a decline of -3.1% for the first half of FY2017 in comparison with the previous half-year period. General-purpose & production machinery led results, while manufacturing grew by +5.7%, while non-manufacturing declined by -9.2% due to the slump in construction orders.

◆Machinery orders, the leading indicator for capex, are expected to experience ups and downs in the future. Investment in maintenance & repair looks promising in the manufacturing industry, but willingness to invest in capacity increase is not strong. In order for capex spending to become full-fledged, operating rates must grow more. The non-manufacturing industry is 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.