By Harumi Taguchi, Principal Economist, IHS Global Insight
Key points:
- Japan’s private machinery orders (excluding volatiles) — the leading indicator of capital expenditure (capex) — rose 15% month on month (m/m) in January, following a 1% rise in December 2015.
- The unexpectedly strong growth largely reflected the almost 930% m/m hike in the orders from the iron and steel industry, while orders from the manufacturing sector, excluding the iron and steel, increased by 3.6% m/m, following two consecutive months of decline.
- Increased orders from the manufacturing sector included continued improvement in the business-oriented machinery, and other transport equipment. Orders from the non-manufacturing sector showed two consecutive months of improvement, thanks to orders from the wholesale and retail industry, finance and insurance, real estate, and some other industries.
IHS Global Insight views:
The solid increase in private machinery orders is in line with the industry outlook for the first quarter of 2016, suggesting stronger growth in capex for the first half of 2016. That said, as the one-off effect of orders from the iron and steel industry dissipates, a steep drop is expected to follow in February. Moreover, the continued decline in overseas demand and the weakness in public orders suggest continued downside pressure on production, which could lead to slower machinery orders from the manufacturing sector. Sluggish outlook for fixed investment in fiscal year 2016 could also weigh on sustained growth in machinery orders and capex.