Japan November Machine Orders Plunge After Rebound in October, on Slowing Global Demand        

–Govt Downgrades View: Machine Orders Pausing Vs. Pickup in Machine Orders Pausing

By Max Sato

(MaceNews) – Japanese machinery orders, the key leading indicator of business investment in equipment, plunged in November in reaction to a rebound October and amid slowing global demand, although capex plans among many sectors appear to remain solid in fiscal 2022, data released Wednesday by the Cabinet Office showed.

In the latest Bank of Japan Tankan survey for the December quarter released last month, major firms slightly revised down their capital spending plans for the current fiscal year but their pace is still high at 19% above fiscal 2021, while smaller firms revised up their plans.

Some capital investment plans are being carried over from fiscal 2021, when the economy was hit by the wintertime spike in Covid cases and supply delays were aggravated by the Ukraine war. Capex is generally supported by demand for automation, government-led digital transformation and emission control.

BOJ policymakers have said they would not consider raising interest rates at this point while inflation is not accompanied by solid wage growth and supply continues to exceed demand in the Japanese economy.

The key points from machinery orders data:

* Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, slumped 8.3% from the previous month on a seasonally adjusted basis to ¥838.8 billion in November after rebounding an above-forecast 5.4% in November to ¥914.7 billion and falling 4.6% in September. The 5.3% rise to ¥966.0 billion in July 2022 was the largest amount since ¥973.5 billion in June 2019. The November figure came in much weaker than the median economist forecast for a 1.0% drop (forecasts ranged from a 2.3% drop to a 2.0% gain).

* Core orders may still post a slight rebound in the final quarter of 2022 after falling 1.6% on quarter in July-September (the official forecast was a 1.8% decline) and surging 8.1% in April-June. The Cabinet Office projected in November that core measure would rebound 3.6% in the October-December quarter.

* Orders from manufacturers fell 9.3% on the month in November for the third straight drop after falling 6.4% in October while those from non-manufacturers in the core measure marked the first drop in three months, slipping 3.0% after surging 14.4%.

* The decrease in core orders in November was led by lower demand from producers of non-ferrous metals and fabricated metal products, two industries that had placed high orders in October. There was also a pullback in demand from information service providers and the farming, forestry and fishing sector after solid orders seen in the prior month. In line with slowing global economic growth, orders from manufacturers of electrical machinery and business machines dipped in November.

* The Cabinet Office made a slight downward revision to its assessment after downgrading it in November, saying, “Machinery orders are pausing.” Previously, it had said, “The move toward a pickup in machinery orders has paused.” The three-month moving average posted the third consecutive decline with a 2.6% drop in the September-November period after falling 1.9% in August-October.

* Core orders dipped 3.7% from a year earlier in November for the first drop in 20 months after rising a below-forecast 0.4% gain in October and a 2.9% rise in September. It was much weaker than the median economist forecast of a 1.8% rise (forecasts ranged from 1.1% to 6.8% increases).