June 2022 Machinery Orders

◆According to statistics for machinery orders in June 2022, the leading indicator for domestic capex and private sector demand (excluding ships and electrical power), orders grew for the first time in two months at +0.9% m/m. Although the recovery from the previous month’s decline is somewhat weak, there were large-scale projects (exceeding 10 bil yen) providing support, and this helped bring performance significantly above the quarterly outlook. The Cabinet Office has therefore left its assessment for machinery orders unchanged at “showing signs of picking up.”

◆Manufacturing orders grew for the first time in two months at +5.4% m/m. There were two large-scale projects which boosted overall performance. As for non-manufacturing orders (excluding ships and electrical power), performance marked time in comparison with the previous month. Results were mixed, with finance and insurance, as well as transportation and postal activities providing a boost to overall performance, while orders for construction declined.

◆As for the future of private sector demand (excluding ships and electrical power), while July appears to have experienced a decline due to the worsening domestic COVID-19 situation, demand is expected to shift into a moderate growth phase beyond that point. A recovery in domestic consumption of services and a comeback for the Chinese economy are expected to provide a tailwind. On the other hand, the sense of uncertainty has recently been growing stronger centering on the US and European economies. Tightening monetary policies could chip away at the desire to invest in capex, and there is still risk of a resurgence in COVID-19 infections in China. Hence caution is required.