By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
Ÿ Japan’s private machinery orders, excluding volatiles, rose 4.1% month on month (m/m) in October, following two consecutive months of decline. The improvement reflected a 4.6% rise in orders from non-manufacturers, offsetting a 1.4% drop in orders from manufacturers
Ÿ Orders from manufacturers declined in October, for the third straight month, due largely to the drop in orders from electrical machinery, petroleum and coal product, and general-purpose and production machinery companies, offsetting surges in orders from chemical and chemical product, and fabricated metal product companies.
Ÿ Major factors behind the increase in orders from non-manufacturers, following two consecutive months of decline, were rebounds in telecommunications and miscellaneous non-manufacturing companies.
IHS Global Insight Views:
The sluggish order from manufacturers was in line with industries’ outlook for the fourth quarter. While orders from non-manufacturers are relatively solid and in line with the industry outlook, IHS Markit maintains its view that private machinery orders will likely remain modest over the near term.
While it seems that manufactures have pushed back their plans to invest in machinery and equipment to the second half of fiscal year 2016, their orders will likely improve by the end of fiscal year (March 2017). The weaker yen could support stronger corporate profits and investment.
That said, recovery in orders will depend on a sustained recovery in external demand, given that uncertainties still linger.
Upbeat figures for housing construction and infrastructure projects could help orders from non-manufacturers. However, the weak industry outlook for the fourth quarter and downward revision to planned investment in machinery and equipment reflect that non-manufacturers are concerned about the rising cost amid weak demand.