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Japan: Machinery orders contract in February

April 10, 2014

Core machinery orders (a leading indicator of capital spending over a three- to six-month period) contracted sharply in February, after having recorded the largest expansion since March 2013 the month before. Headline machinery orders (private sector, excluding volatile orders) tumbled 8.8% over the previous month in seasonally-adjusted terms in February, which contrasted the 13.4% increase recorded in January. February's drop exceeded the 2.6% contraction that market analysts had expected.

Both overall manufacturing and non-manufacturing orders dipped into the red in February. Machinery orders from overseas, which determine future exports, slowed to a three-month low in the same month. Compared to the same month last year, core machinery orders increased 10.8% in February. The expansion was well below the 23.6% rise recorded in January, which had marked the highest reading since August 2010. Nevertheless, the trend continues to point upward; annual average growth in core machinery orders rose from 7.9% in January to 9.7% in February, which marks the highest level since May 2001.

As a result of the monthly drop, the Cabinet Office downgraded its assessment on machinery orders for the first time since October 2012 and stated that, “the increasing trend of machinery orders is stalling.” In addition, the Office predicts that there will be a 2.9% drop in the first quarter following the 1.5% expansion in the final quarter of 2013.

FocusEconomics Consensus Forecast panelists expect investment to rise 3.8% in 2014, which is down 0.3 percentage points over last month's projection. In 2015, the panel sees investment expanding 4.2%.


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Japan Investment February 2014

Note: Month-on-month changes of seasonally adjusted core machinery orders and year-on-year growth rate in %.
Source: Ministry of Economy, Trade and Industry (METI) and FocusEconomics calculations.


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