April Machinery Orders

◆Machinery orders (Cabinet Office [CAO]; private sector excl. those for shipbuilding and from electric utilities; this basis hereafter unless otherwise specified) declined 8.8% m/m in April, the first slide in three months, undershooting consensus expectations (down 8.1%).

◆By demand source, manufacturing orders posted the first slide in three months (down 7.3% m/m). Non-manufacturing orders saw the first slide in three months (down 6.0% m/m). While reactionary slides to the previous month’s boost were seen, positive developments were also seen—orders from the electrical machinery and construction industries were firm. Thus, the April result was favorable overall, excluding reactionary slides.

◆Overseas orders posted the first m/m slide in three months (down 19.9%). The slide was small compared to the previous month’s boost (up 52.1%), and the level of such orders has risen. Thus, we believe overseas orders have been on a moderate uptrend.

◆CAO projects that machinery orders will decline 1.5% q/q in Apr-Jun 2013 for the fifth consecutive quarter. The projection will be fulfilled if orders decline 2.2% m/m in May and June, easy targets to satisfy. Indeed, we expect machinery orders to post the first q/q gain in five quarters in Apr-Jun. In addition, exports will gain momentum going forward, as benefits from a weaker yen will emerge in full swing. This will, in turn, improve corporate stance on capex, centering on manufacturing industries. Non-manufacturing industries project advances in capex, centering on IT-related investment. As such, capex will likely move to an uptrend in mid-2013 and beyond.