Japan May Machine Orders Slump After April Rebound, Led by Pullback in Computer Demand from Financial, Transport Sectors

–Cabinet Office Keeps View: Machine Orders Pausing

–Core Machinery Orders Unlikely to Achieve Official Forecast of 4.6% Q/Q Rise in April-June

–BOJ’s June Quarter Tankan Survey Has Shown Firms Revise Up FY23 Capex Pans

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, came in much weaker than expected, posting a sharp drop in May after a rebound in April, as recent solid demand for computers among the financial and transport sectors pulled back, offsetting an uptick in orders for engines and chemical equipment from manufacturers, data released Wednesday by the Cabinet Office showed.

For fiscal 2023 that began in April, capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation 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 this month showed.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, slumped 7.6% from the previous month on a seasonally adjusted basis to ¥831.5 billion in May, hitting the lowest amount since ¥825.2 billion in February 2022. It followed a 5.5% rise to ¥900.0 billion in April and a 3.9% drop to ¥852.9 billion in March. It was much weaker than the median economist forecast of a 1.0% rise (forecasts ranged from a 3.0% drop to a 2.1% gain). The amount in January was the largest since ¥948.8 billion in July 2022.  

* Machinery orders are unlikely to achieve the official forecast made in May. The Cabinet Office has projected that core orders would rise a further 4.6% in the April-June quarter after a 2.6% rise in January-March, led by a sharp rise in orders from the non-manufacturing sector, as consumer spending on services is expected to remain solid without strict Covid public health rules. Core orders would have to jump 27.7% in June to hit the official forecast. If they were unchanged in June, they would fall 4.0% in the April-June quarter.

* Orders from manufacturers rose 3.2% on the month in May, the first rise in three months, after falling 3.0% in April, while those from non-manufacturers in the core measure plunged 19.4% after surging 11.0% the previous month. 

* The decrease in core orders in May was led by a slip in demand for computers from the financial and insurance industries, transport, and postal service companies as well as other non-manufacturing industries. Solid demand for computers from those sectors had led an increase in overall orders in April. In the manufacturing sector, there were a large one-off order for engines from shipyards and higher orders for chemical equipment from refineries.

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

* Core orders fell 8.7% from a year earlier in May after decreases of 5.9% in April and 3.5% in March and surging 9.8% in February. It was well below the median economist forecast of a slight 0.1% rise. Forecasts ranged from a 3.9% drop to a 1.6% gain.