Japan August Machine Orders Slump Amid Slower Global Growth, Q3 Seen Flat So Far 

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

–BOJ September Quarter Tankan Survey Has Shown Solid FY22 Capex Demand

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, fell at a faster pace than expected in August amid slower global growth, giving up all of their unexpected jump in July, but demand for upgrading operations for the current fiscal year appears solid, data released Wednesday by the Cabinet Office showed.

Record profits are prompting major firms to boost capacity, which has been delayed during Covid public health restrictions and global supply disruptions, according to the Bank of Japan’s Tankan business survey for the September quarter released earlier this month.

But BOJ Governor Haruhiko Kuroda has repeatedly said the bank would not consider raising interest rates while inflation is not accompanied by solid wage growth and supply continues to exceed demand in the Japanese economy. The BOJ board has projected inflation is unlikely to be anchored around its 2 percent target at least for the next few years.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, fell 5.8% from the previous month on a seasonally adjusted basis to Y909.8 billion in August after rising an above-forecast 5.3% to Y966.0 billion in July, which was the largest amount since Y973.5 billion in June 2019. It followed a 0.9% rise in June, a 5.6% drop in May and an unexpected 10.8% surge in April. The August figure came in much weaker than the median economist forecast for a 1.3% dip (forecasts ranged from a 5.3% drop to a 4.5% gain).

* Orders from manufacturers rebounded 10.2% on the month in August after falling 5.4% in July while those from non-manufacturers plunged 21.4% after rising 15.1%, which was the largest increase since a 19.6% surge in November 2019.

* The decrease in core orders in August was led by lower demand for transport equipment from production machine makers and for computers from manufacturers of electric and telecommunications machinery. There was also a pullback in orders for transport equipment from real-estate firms and for communications equipment from the telecommunications industry, both of which had led the solid increase in July core orders.

* Machinery orders are flat so far in the third quarter after core orders jumped 8.1% on quarter in the April-June quarter and fell 3.6% in January-March. The Cabinet Office projected last month that core orders would slip 1.8% in July-September

* The Cabinet Office maintained its assessment after upgrading it for the first time in four months in June for April data, saying, “Machinery orders are showing signs of a pickup.” The three-month moving average was unchanged in the June-August period after edging up 0.1% in May-July and rising 1.7% in April-June. It has been trending up since the recent bottom hit during the early parts of 2020. 

* Core orders rose 9.7% from a year earlier in August for the 17th straight rise after rising 12.8% in July. It was below the median economist forecast of a 13.0% rise (forecasts ranged from an 8.0% rise to a 19.7% gain).

* Orders from overseas, which are not part of the core measure, plunged 18.9% on the month in August for the fourth straight drop amid slower global economic growth, following decreases of 2.4% in July, 4.6% in June and 2.4% in May and a 52.1% surge in April. This category posted the first year-over-year fall in six months in August, down 3.3%, after rising 3.0% in July. The pace of double-digit percentage gains had decelerated to 26.4% in June from 28.3% in May and 38.2% in April.