Japan June Core Machine Orders Rebound Moderately but Slump in Q2; Official Forecast Points to Further Drop in Q3 

–Cabinet Office Keeps View: Machine Orders Pausing

–Q2 Core Machine Orders -3.2% Q/Q (Q1 +2.6%) Vs. Official Forecast of +4.6%; Q3 Seen Down 2.6%

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, chalked up a smaller-than-expected rebound on the month in June after slumping in May, backed by solid demand for computers among the financial and transport sectors amid a government-led digital transformation drive, data released Thursday by the Cabinet Office showed.

Core machinery orders marked their fourth straight decline from a year earlier while also slumping on the quarter in the April-June period, coming in much weaker than a solid gain projected by the government. 

For fiscal 2023 that began in April, capital investment is generally supported by demand for automation amid labor shortages, digitization, and emission control. Both large and small firms revised up their combined capex plans for the current fiscal year, the Bank of Japan’s quarterly Tankan business survey for June released in July.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, rose 2.7% from the previous month on a seasonally adjusted basis to ¥854.0 billion in June after plunging 7.6% to ¥831.5 billion in May, which was the lowest amount since ¥825.2 billion in February 2022. These figures followed a 5.5% rise to ¥900.0 billion in April and a 3.9% drop to ¥852.9 billion in March. The increase in June was smaller than the median economist forecast of a 4.0% rise (forecasts ranged from a 1.1% drop to a 7.1% gain).

* Core orders fell 3.2% on quarter in the April-June quarter, as largely expected and coming in much weaker than the official forecast of a 4.6% increase provided in May. It followed a 2.6% rebound in January-March and decreases of 4.7% in October-December and 1.6% in July-September and a 6.7% rise in April-June 2022.

* The Cabinet Office projected that core orders would dip a further 2.6% in the July-September quarter, led by declines in orders from both the manufacturing and non-manufacturing sectors. This indicates business investment in equipment may remain sluggish in the third quarter after being flat in the second quarter GDP data released Tuesday. Japan’s overall economic growth is expected to be supported by consumer spending on services in the July-September quarter. 

* Orders from manufacturers rose 1.6% on the month in June for the second straight increase after rising 3.2%, while those from non-manufacturers in the core measure rose 9.8% after plunging 19.4% the previous month. 

* The increase in core orders in June was led by demand for computers from the financial and insurance industries, transport and postal service companies as well as the telecommunications industry. In the manufacturing sector, there was demand for chemical equipment from non-ferrous metal and chemical product makers. In the April-June quarter, the decline was due to slower demand for computers from construction and telecommunications firms as well as lower orders for boilers and turbines from non-ferrous metal makers. 

* The Cabinet Office maintained its assessment after downgrading it in January for November data, saying, “Machinery orders are pausing.” The three-month moving average was unchanged in the April-June period after falling 2.1% in March-May, dropping 1.1% in February-April and rising 0.2% in January-March.

* Core orders fell 5.8% from a year earlier in June after decreases of 8.7% in May, 5.9% in April and 3.5% in March and a 9.8% jump in February. It was smaller than the median economist forecast of a 6.9% drop. Forecasts ranged from 10.0% to 3.2% falls.