October Machinery Orders

◆According to statistics for machinery orders in October, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew by +5.0% m/m. Manufacturing registered growth of +7.4%, while non-manufacturing also grew by +1.1%.

◆The Cabinet Office forecast for the Oct-Dec 2017 period sees manufacturing with a decline of -9.4% q/q, but October results are a plus, showing the industry with a strong growth trend. On the other hand, the non-manufacturing industry, which maintained a high level of performance during the previous fiscal year, is in a gradual declining trend when all is averaged out, despite the growth recorded in October.

◆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 with expanding exports backed by the recovery in the global economy, but willingness to invest in capacity increase is not strong. In order for capex spending to become full-fledged, operating rates must grow more. On the other hand, 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, but caution is advised regarding the weakening growth trend in housing starts and public investment.