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Japan Investment March 2021

Japan: Core machinery orders rebound in March

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—increased 3.7% in month-on-month seasonally-adjusted terms in March, which contrasted February’s 8.5% decrease.

On an annual basis, machinery orders fell at a more moderate rate of 2.0% in March (February: -7.1% yoy). Meanwhile, the trend pointed down, with the annual average variation of machinery orders coming in at minus 8.8% in March, down from February’s minus 8.6% reading.

March’s report also included machinery manufacturers’ forecasts for April–June 2021, which projects an 2.5% increase in core machinery orders over the period, thus indicating renewed optimism regarding capital spending after Q1’s 5.3% contraction in machinery orders.

Looking ahead, economists at Nomura preach caution regarding capital spending in the months to come:

“We think the March survey suggests machinery manufacturers are anticipating a recovery in capex in Apr-Jun. However, we would point out that the timing of the survey in March means it does not reflect the declaration of a third state of emergency in Japan. […] We think real capex on a GDP basis will stagnate through Apr-Jun and a full-scale recovery will not start until the second half of 2021, after the rollout of vaccinations in Japan has gotten well under way.”

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