Japan October Core Machine Orders Post 2nd Straight M/M Rise on Persistent Digitization Demand but Computer Orders Mixed After Recent Gains

–Core Orders Mark 8th Straight Y/Y Drop Despite Solid FY23 Capex Plans

–Cabinet Office Keeps View: Machine Orders Pausing

By Max Sato

(MaceNews) – Japanese core machinery orders, the key leading indicator of business investment in equipment, unexpectedly posted a second straight monthly gain in October, up 0.7%, after rebounding an above-forecast 1.4% in September and falling 0.5% in August, as demand for computers is mixed among industries after recent gains, data released Thursday by the Cabinet Office showed.

Core orders marked their eighth straight decline from a year earlier, down by a smaller-than-expected 2.2%, following a 2.2% dip in September and a 7.7% slump in August.

Some firms are cautious about implementing their solid capital investment plans for fiscal 2023 ending next March but capex is generally supported by demand for automation amid labor shortages as well as government-led digitization and emission control.

The Bank of Japan’s quarterly Tankan business survey for the December quarter showed large firms revised down their plans for investment in equipment for fiscal 2023 only slightly from the September survey while smaller firms continued raising their capex plans. The survey also showed stronger-than-expected business sentiment in both the manufacturing and non-manufacturing sectors.

The key points from machinery orders data:

* Core private-sector machinery orders which exclude volatile orders from electric utilities and for ships, rose 0.7% from the previous month on a seasonally adjusted basis to ¥858.7 billion in October after rising 1.4% to ¥852.9 billion in September. It was stronger than the median economist forecast of a 0.5% drop (forecasts ranged from a 4.0% drop to a 3.4% gain).

* Orders from manufacturers edged up 0.2% on the month in October after falling 1.8% in September and rising 2.2% in August while those from non-manufacturers in the core measure rose 1.2% after jumping 5.7% the previous month and falling 3.8% in August.

* The increase in core orders in October was led by higher demand for computers from the wholesaler/retailer category and real-estate firms as well as from metal producers. Higher orders were also seen for boilers and turbines from “other manufacturers” and pumps and compressors from general and production machine makers. On the downside, orders for computers from leasing firms, the telecommunications firms and information service providers slipped after recent gains.

* The Cabinet Office maintained its assessment after downgrading it in January for the November 2022 data, saying, “Machinery orders are pausing.”

* Machinery orders made a solid start to the fourth quarter. Last month, the Cabinet Office forecast that core orders would edge up 0.5% in the October-December quarter, led by a sharp rebound in orders from the non-manufacturing sector, which is expected to offset a second straight quarterly drop in those from the manufacturing sector.

* Core orders fell 2.2% from a year earlier in October for the eighth straight decline after falling 2.2% in September, 7.7% in August and plunging 13.0% in July, which was partly in reaction to a sharp 12.8% gain seen in July 2022. It was firmer than the median economist forecast of a 5.7% drop. Forecasts ranged from 9.8% to 1.0% declines.