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Japan: Machinery orders contract in July for the second consecutive month

September 10, 2015

Core machinery orders (a leading indicator of capital spending over a three- to six-month period) declined in July for the second consecutive month. While this mainly reflected market turmoil and uncertainty about the global economy, it also ratchets up pressure on the Central Bank to act further to support the economy. Headline machinery orders (private sector, excluding volatile orders) declined 3.6% in July over the previous month, in seasonally-adjusted terms, which followed the 7.9% decrease recorded in June. The result contrasted the 3.0% increase that market analysts had expected.

While overall manufacturing orders declined at a softer rate in July, non-manufacturing fell at the fastest pace in over a year in the same month. On the upside, export orders expanded strongly in July, reflecting rising overseas demand for Japanese goods.

Compared to the same month of last year, core machinery orders rose 2.8% in July. The print marked a sharp drop over the 16.6% increase tallied in the previous month. Despite the slowdown, the trend continues to point upward, with annual average growth in core machinery orders inching up from 3.8% in June to 3.9% in July, which marked a seven-month high.

The Cabinet Office cut its assessment on machinery orders, stating that, “the pickup is seen stalling.” Businesses surveyed by the Cabinet Office predict that there will be a 0.3% increase in the third quarter, following Q2’s 2.9% expansion.

FocusEconomics Consensus Forecast panelists expect private non-residential investment to rise 2.2% in 2015, which is up 0.1 percentage points over last month’s projection. In 2016, the panel sees private non-residential investment expanding 3.0%. In addition, FocusEconomics Consensus Forecast panelists expect gross fixed investment to drop 1.2% in 2015, which is up 0.2 percentage points over last month’s projection. In 2016, the panel sees gross fixed investment growth at 2.1%.


Author: Ricard Torné, Lead Economist

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Japan Investment June 2015 1

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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