Japan May Machine Orders Dip as Expected After Sharp Gains; Capex Plans Seen Solid

–Japan Govt Keeps View After Upgrade: Machine Orders Showing Signs of Pickup

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, posted the first month-on-month drop in three months, taking a breather after sharp gains led by computer demand, but capital spending plans are expected to be solid in coming months, data released Monday by the Cabinet Office showed.

The Bank of Japan’s quarterly Tankan business survey for June released on July 1 showed that both large and smaller companies revised up their plans for investment in equipment sharply for fiscal 2022 that began on April 1.

The drag from the pandemic is fading and some plans may be carried over from the previous quarter, when the economy was hit by a spike in Covid cases and supply delays were exacerbated by the Ukraine war. Capex is supported by potential demand for automation, government-led digitization and emission control. 

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, fell 5.6% on the month in May on a seasonally adjusted basis after unexpectedly surging 10.8% in April. It was in line with the median economist forecast for a 5.7% drop. Core orders marked the first rise in three months in March, up 7.1%, after slumping 9.8% in February. Orders from both manufacturers (-9.8%) and non-manufacturers (-4.1%) recorded the first drop in three months, despite a large one-off order for an engine from the shipbuilding industry.

* The decrease was led by lower orders for computers and communications equipment from producers of electrical machines after strong orders the previous month, as well as a decline in orders for aircraft and ships from “other” transport equipment makers. Computer orders from transportation firms, financial service providers and “other” non-manufacturers also dropped in May in reaction to higher orders in April.

* In May, 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, which was the first drop in four quarters. Core orders would rise 7.8% in the second quarter even if they show no growth in June. For the core reading to match the projected 8.1%, they could fall as much as 45.1% on the month in June.

* “We do not know at this point whether a surge in electricity demand had any impact on machinery orders in June,” a Cabinet Office official said. The government urged businesses and households to save energy in late June to avoid power cuts during the early heat wave. 

* The Cabinet Office maintained its assessment after upgrading it for the first time in four months last month, saying, “Machinery orders are showing signs of a pickup.” 

* Core orders rose 7.4% from a year earlier in May for the 14th straight rise, following increases of 19.0% in April, 7.6% in March and 4.3% in February. It was firmer than the median economist forecast of a 5.8% rise.

* Orders from overseas, which are not part of the core measure, dipped 2.4% on the month in May after surging 52.1% in April, falling 14.2% in March and slipping 2.8% in February. This category maintained a fast pace of year-on-year increase, up 28.3% in May, after rising 38.2% in April and 26.7% in March and falling 31.0% in February, which was the first year-on-year drop in 11 months.