Japan's Premier Shinzo Abe - Photo by Japan Government

JAKARTA (TheInsiderStories) – Japan‘s private machinery orders excluding volatiles – a leading indicator of capital expenditure – fell 18.3 percent in September compared to previous month (month on month/MoM) following two consecutive months of increase.

Orders from both manufacturers and non-manufacturers declined 17.3 percent and 17.1 percent (MoM), respectively,following two consecutive months of increase. Machinery orders from overseas also decreased by 12.5 percent (MoM), following two consecutive months of increase. This led to a contraction of 1.6 percent quarter to quarter (QoQ) in third quarter 2018, for a third consecutive quarter of decline.

Japan’s current account surplus declined 19.3 percent year on year (YoY) to JPY1.8 trillion (US$16.0 billion) on a non-seasonally adjusted basis in September. The surplus fell on a seasonally adjusted basis for the fifth consecutive month, by 6.6 percent (MoM) to JPY1.3 trillion.

The continued YoY decline in the non-seasonally adjusted current-account surplus reflected a weaker trade surplus, which declined by JPY535 billion from a year ago to the surplus of JPY323 billion. This was due to an 8.0 percent (YoY) rise in imports, boosted by higher energy prices, while exports slid 0.9 percent (YoY).

Despite a decline in the travel balance surplus, which reflected a drop in the number of visitors from abroad (because of natural disasters), the service balance deficit narrowed by JPY16 billion from a year ago thanks to improved balances in other services. The primary income balance, a major source of the current account surplus, rose JPY26 billion from a year ago to JPY1.6 trillion.

Harumi Taguchi, Principal Economist, IHS Markit said, the historically sharp contraction in Japan’s private machinery orders does not indicate an immediate decline in capex, given the volatile nature of these statistics –even though volatiles, such as orders for ships and orders from electric power companies, are excluded.

Despite the sluggish September result, private machinery orders, excluding volatiles, were above the industry outlook and up 0.9 percent (QoQ) for the fifth consecutive quarter. Industry anticipates a 3.6 percent (QoQ) rise in private machinery orders, excluding volatiles, in the fourth quarter of 2018, driven by a rebound in orders from manufacturers.

This suggests manufacturers remain upbeat toward increasing capital expenditures, and demand for machinery and equipment to counter labor shortages will continue.

That said, softer momentum for orders from general-purpose and production machinery and electrical machinery could reflect weak external orders and soft industrial production.

Japan’s current account is likely to remain in surplus, but weak external demand and higher oil prices could continue to suppress the current-account surplus over the near term. The softer trade surplus in September largely reflected disruption caused by super typhoon Jebi and the Hokkaido earthquake.

However, the weakness in exports also reflects softer external demand. The repercussions of US-China trade tensions and the likelihood of a narrower trade surplus with the US following the US-Japan trade agreement are major concerns. Although the recent decline in crude oil prices could soften import growth, geopolitical risks could lead a rebound in oil prices and boost Japan’s imports.

Written by Staff Editor, Email: theinsiderstories@gmail.com