January 2018 Machinery Orders

◆According to statistics for machinery orders in January, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew by +8.2% m/m in a rebound from last month’s decline. Manufacturing was up by +9.9%, while non-manufacturing (excluding ships and electric power) gained by +4.4%.

◆Manufacturing orders for the Jan-Mar period are expected to be down by -7.0% q/q, but January performance greatly exceeds the outlook, and there is a good chance that favorable performance can be maintained. Energy-saving and labor-saving investment has brought favorable orders to industrial machinery and machine tools, as well as computers and telecommunications equipment, including items attracting IT investment. Meanwhile, non-manufacturing orders continue to mark time.

◆Machinery orders, the leading indicator for capex, are expected to exhibit moderate growth in the future, and then slow down by around 2019 at the latest. In manufacturing, expanding exports are expected to act as a tailwind in generating replacement demand for machinery and facilities, but considering the approximately ten-year cycle which tends to drive capex, there is a good possibility that a slowdown will occur by around 2019 at the latest. On the other hand, in the non-manufacturing industries, investment in transportation and logistics infrastructure to handle growth in the number of foreigners visiting Japan appears promising, along with IT investment to handle the tight labor market. It should be noted, however, that due to the shortage of manpower, goods and services of this type face strict supply constraints, and this is cause for concern.