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Japan Investment February 2021

Japan: Core machinery orders fall at sharpest rate since April 2020 in February

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—dropped 8.5% in February (January: -4.5% mom). February’s figure marked the worst reading since April 2020.

On an annual basis, machinery orders plummeted 7.1% in February, contrasting January’s 1.4% expansion. Accordingly, the trend pointed down, with the annual average variation of machinery orders coming in at minus 8.6%, down from January’s minus 8.3% reading.

Looking ahead, economists at Nomura continue to be relatively optimistic regarding capital spending this year:

“Core machinery orders have fallen noticeably since the start of 2021, suggesting that corporations may be holding back on capex in response to the renewed state of emergency declaration. While it now looks more likely that capex could get off to a somewhat weak start in FY21 [1 April 2021–31 March 2022], the noteworthy increase in overseas demand suggests little need for us to revise our forecast of an increasingly strong recovery in capex demand in Japan fueled by increases in exports.”

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