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Japan Investment August 2021

Japan: Core machinery orders drops at sharpest rate since February in August

Core machinery orders—which cover the private sector, exclude volatile orders and are a leading indicator for capital spending over the coming three-to-six-month period—declined 2.4% month-on-month in seasonally-adjusted terms in August (July: +0.9% mom). August’s result marked the lowest reading since February.

On an annual basis, machinery orders rose 17.0% in August, notably above July’s 11.1% expansion. Moreover, the trend improved significantly, with the annual average growth of machinery orders coming in at a two-year high of plus 3.0%, up from July’s 0.7% reading.

Regarding the outlook, analysts at Nomura commented:

“[…] When looking at quarterly trends, we see a clear slowdown in orders. Semiconductor and auto parts supply shortages remained in place in September, and as we do not expect to see a sharp recovery in manufacturer orders, we think July–September core machinery orders likely slowed temporarily qoq. But if the reason for this decline is supply constraints, we still think capex is likely to remain strong as economic activity recovers from the pandemic.”

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