The Cabinet Office of Japan released machine order statistics for August on the 16th. The data shows that private demand (excluding ships and electricity, seasonally adjusted), which is considered a leading indicator of capital investment, decreased by 1.9% from the previous month to 858.1 billion yen. This marks the second consecutive month of decline for this indicator, and the drop exceeded market expectations. The median forecast compiled by QUICK prior to the release was a 0.5% decrease.
Despite the consecutive declines, the Cabinet Office maintained its basic assessment that “the recovery appears to have stalled.” One reason for maintaining this judgment may be that the three-month moving average showed a slight increase of 0.01%, which helps smooth out monthly fluctuations.
Breaking down the figures, both manufacturing and non-manufacturing sectors showed negative month-on-month growth. Manufacturing orders fell 2.5% to 388.4 billion yen, marking the third consecutive month of decline. Among the 17 industries, 9 showed month-on-month decreases. Industries with larger declines mainly rebounded from the previous month’s growth. Notably, orders for aircraft parts and electronic applications such as X-rays had shown strong performance in July.
In the non-manufacturing sector, orders decreased by 7.7% to 446.9 billion yen, the first decline in three months. By industry, the transportation and postal sector, which had received orders related to Electronic Toll Collection (ETC) systems in the previous month, saw a significant rebound, dropping by 34.4%. This substantial decline may be one of the main reasons for the overall decrease in non-manufacturing orders.
Despite the poor August data, the Cabinet Office remains cautiously optimistic about the third quarter (July to September). Forecasts indicate that private demand (excluding ships and electricity) for the July-September quarter will increase by 0.2% year-on-year. To achieve this estimate, the Cabinet Office expects a month-on-month increase of 4.2% in September. This prediction seems rather optimistic, considering the downward trend of the past two months, and achieving a 4.2% increase may be challenging.
Machine order data is widely viewed as an important indicator of Japanese companies’ willingness to invest in equipment. Two consecutive months of decline may reflect companies’ cautious attitude towards expanding production capacity in the current economic environment. However, the slight increase in the three-month moving average suggests that despite short-term fluctuations, the overall trend may remain relatively stable.
The Japanese economy is facing multiple challenges, including slowing global economic growth, trade tensions, and the post-pandemic recovery process. In this context, the trend of machine orders is significant for assessing the health of the Japanese economy and its future development prospects.
The Cabinet Office’s forecast for the third quarter shows some confidence, but achieving this goal may require a significant rebound in September orders. This will depend on various factors, including the global economic situation, domestic demand in Japan, and government policies.
Key points:
- Japan’s machine orders decreased by 1.9% month-on-month in August, falling for the second consecutive month.
- Manufacturing orders fell by 2.5%, while non-manufacturing orders decreased by 7.7%.
- The Cabinet Office maintains its basic assessment that “the recovery appears to have stalled.”
- The three-month moving average showed a slight increase of 0.01%, indicating relative stability in the overall trend.
- The Cabinet Office forecasts a 0.2% year-on-year increase in private demand for the third quarter, requiring a 4.2% month-on-month increase in September to achieve this.
