Japan Machinery Orders Drop In July

Thursday, the Cabinet Office of Japan announced that Japanese core machinery orders plummeted month-on-month in July, with the decline being driven by falling machinery orders in the manufacturing sector. The latest data signaled that Japanese firms remained wary of an economic recovery and are still cutting down on investment.

Core machinery orders fell a seasonally adjusted 9.3% in July compared to the 9.7% rise in the previous month. Economists were looking for a more modest 3.5% decrease. Including volatile orders, private sector machinery orders were down 1.5% from June.

Of the core private sector machinery orders, orders in the manufacturing sector slipped 20.4% month-on-month in July, compared to the 14.6% increase in the previous month. Orders in the core non-manufacturing sector also dropped, down 2.8% in July from the 7.3% growth witnessed in June.

Analyzing by industries in the manufacturing sector, non-ferrous metals recorded the biggest monthly decline, down 85.7% in July. It was followed by other transport equipment, which decreased 50.1%, and iron & steel, down 36.5%. General machinery orders plummeted 32% in July.
The fall was partly offset by orders in the petroleum & coal products industry group, which soared 51.2%. Other notable increases include, paper & paper products, which rose 37.8%, and precision instruments, up 32.5%.

In the non-manufacturing sector, machinery orders in mining witnessed the biggest fall, down 46.3% in July. On the other hand, orders in the electricity supply industry ballooned 50.4%, and orders in finance & insurance was up 25.6%.

On a yearly basis, core machinery orders in the private sector plunged 34.8% in July, faster than the 29.7% drop in the previous month. Economists had predicted orders to fall 31%.

Also, machinery orders in the government sector was up 25.2% on a monthly basis in July, while orders from overseas increased 21.8%. Machinery orders through agencies increased 5.7% in July. The total machinery orders comprising all the above categories, and also including orders in the private sector, rose 7.5% month-on-month.

The Cabinet Office predicted core machinery orders to drop 8.6% in the current September quarter, following the 4.9% fall in the June quarter.

Meanwhile, in a separate report released earlier in the day, the Bank of Japan revealed that the Japanese domestic corporate goods price index was down 8.5% year-on-year in August. The index was roughly inline with analyst expectations for an annual contraction of 8.3% following the 8.5% decline in July.

In terms of commodities, general machinery & equipment prices was down 1.3% on year in July. Other significant decreases include, processed foodstuff prices, which decreased 0.5%, while electric power, gas & water prices went down 9%. Prices of chemicals & related products slid 13.2%

The fall in prices across the board was slightly offset by transport equipment, which increased at an annual rate of 3.8% in July. Prices of ceramic, stone & clay products was up 2.8%, while pulp, paper & related products prices increased 1.1%.

On a monthly basis, the prices for domestic corporate goods remained flat. Forecasts had predicted an increase of 0.2% following the 0.4% gain in the previous month.

The Japanese yen was little changed against its major opponents following the release of the machinery orders and domestic corporate goods price index reports.