Japan April Machine Orders Mark Unexpectedly Sharp Rise on Computer Demand

–Japan Government Upgrades View: Machine Orders Showing Signs of Pickup Vs. Previous Assessment that Pickup Stalling

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, unexpectedly posted a second straight sharp monthly gain in April on solid demand for upgrading computer systems, raising hopes that orders for the second quarter may not be so weak as officially projected last month despite uncertainty over global growth and surging producer costs, data released Wednesday by the Cabinet Office showed.

Last week, the Cabinet Office said Japan’s economic slump in the January-March quarter, reflecting Covid restrictions on consumer spending and a surge in import costs, was revised up slightly as private-sector inventories turned out to be much higher than previously estimated.

But the GDP data also showed that the quarter-on-quarter change in business investment in equipment was revised down sharply to a 0.7% decline from a 0.5% increase. Capex now posted the first quarterly drop in two months after a downwardly revised 0.1% rise in October-December and a 2.4% slump in July-September, trimming the January-March GDP by 0.1 percentage point, instead of raising it by a preliminary 0.1 point.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, surged 10.8% on the month on a seasonally adjusted basis after marking the first rise in three months in March, up 7.1%, and slumping at a faster-than-expected pace of 9.8% in February. It was much stronger than the median economist forecast for a 1.2% drop. Orders from both manufacturers and non-manufacturers recorded the second straight rise.

* “There were no large one-off orders in the core category in April and the sharp increase reflects higher demand from electrical machine makers and telecommunications equipment makers,” a Cabinet Office official told Mace News. “We still have to watch how things develop as this indicator tends to swing widely.”

* The increase was led by higher orders for computers and communications equipment from producers of electrical machines as well as telecommunications equipment. Strong demand was also seen for electric measuring equipment and computers from “other non-manufacturers” including utilities, and for train cars and computers from transportation firms. 

* Last month, the Cabinet Office projected that core orders would fall further by 8.1% on quarter in April-June after falling 3.6 percent in January-March for the first drop in four quarters. With April’s sharp 10.8% rise, core orders would be up 12.0% in the second quarter if they were flat in May and June.

* The Cabinet Office upgraded its assessment for the first time in four months, saying, “Machinery orders are showing signs of a pickup.” It was only in April (for February data) when it downgraded its view to say “the pickup in machinery orders is stalling,” compared to its previous statement that that machinery orders were “picking up.” 

* Core orders also showed a sharp 19.0% rise from a year earlier in April for the 13th straight rise, following increases of 7.6% in March and 4.3% in February.

* Orders from overseas, which are not part of the core measure, soared 52.1% on the month in April after dipping 14.2% in March, slipping 2.8% in February and rising 0.9% in January. This category rose 38.2% on year after rising 26.7% in April and falling 31.0% in February, which was the first year-on-year drop in 11 months.