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Japan Investment December 2020

Japan: Core machinery orders growth improves in December

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—grew 5.2% month-on-month in seasonally-adjusted terms in December, accelerating from November’s 1.5% increase.

On an annual basis, machinery orders rebounded strongly, rising 11.8% in December (November: -11.3% yoy), the best result since June 2019. Moreover, the trend improved significantly, with the annual average variation of machinery orders coming in at minus 8.4% in December, up from November’s minus 9.6% reading.

December’s report also included machinery manufacturers’ forecasts for January–March 2021, which projects an 8.5% decline in core machinery orders over the period. The spike in Covid-19 cases both domestically and abroad likely weighed on the outlook, while Q4 2020’s solid growth also provides a high base for the quarterly outlook.

Despite the Q1 forecast, economists at Nomura are relatively optimistic regarding capital spending this year:

“Although a pause is thus expected in the growth seen through the end of 2020, we do not think manufacturers expect a change in the overall capex recovery trend. We forecast a relatively strong recovery in capex in 2021, bolstered by a recovery in overseas demand.”

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