JAKARTA - IHS Global Insight provides updates and commentary on Japan’s private machinery orders. It said the uptrend momentum suggests capex recover likely to remain modest. Followings are the key points:
Key Points:
- Japan’s private machinery orders (excluding volatiles) fell by 2.2% month-on-month (m/m) in August following two consecutive months of increases. The weakness was attributed to declines for orders from both manufacturing and non-manufacturing industry groupings (-4.0% m/m and -1.9% m/m, respectively).
- Major factors behind declines for orders from manufacturing largely reflected shortfalls following surges in orders from iron and steel, chemical and chemical products, and fabricated metal products, and these were partially offset by increases in orders from the electrical machinery, ceramic, stone and clay products, automobiles and miscellaneous manufacturing groupings.
- The contraction in orders for non-manufacturing was due largely to declines for agriculture, forestry and fishing, telecommunications, finance and insurance, which were partially offset by increases in transportation, construction, information services, and miscellaneous groupings.
IHS Global Insight Views:
The August result was better than expected and private machinery orders (excluding volatiles) in the third quarter are likely to exceed the industry outlook (for a 5.2% quarter-to-quarter rise) unless September orders show a large contraction. This suggests companies have moved ahead with their fixed investment plans which they pushed back on in the first half of 2016 because of the rising yen and increased uncertainties over the global economy.
That said, IHS Markit expects the recovery for capex to remain modest until overall capacity utilization improves. This is because increases in orders for electrical, communication, and industry machinery in private demand remain moderate, although increases in orders for rolling machines and steel structures are likely to continue, reflecting infrastructure demand related to stimulus plans. Orders from overseas increased by 6.8% m/m in September, but a continued downtrend could weigh on production, and in turn, orders from manufacturing. (*)
By Harumi Taguchi, Principal Economist, IHS Global Insight