MNI DATA ANALYSIS: Japan Machine Orders Rebound, Capex Intact

--Jan Core Machine Orders +8.2% M/M; MNI Median +6.6%

--Q1 Core Orders Forecast -1.5% Q/Q, Revised Down From +0.6%

--Govt Keeps View: Machine Orders Show Signs of Pickup

By Max Sato

     TOKYO (MNI) - Japanese machinery orders rebounded in January backed by

strong global demand for semiconductors and the domestic need to ease labor

shortages with technology, boding well for business investment in equipment,

data released Wednesday showed.

     Following the annual revision to seasonal adjustments, the Cabinet Office

revised down its forecast for core private-sector machine orders in the

January-March quarter, but Q1 orders are estimated to show a gain even if they

are flat in each of February and March.

     This piece of data suggests solid demand for business investment in

equipment will continue for now following last week's Q1 GDP data that showed

Japan's economic growth was revised up sharply to an above-potential rate on

firmer-than-expected capex and consumption, indicating the modest recovery is

sustained.

     Orders for chip-making machines and other general machinery are on a clear

uptrend, reflecting global demand for semiconductors, while demand for

industrial robots remains strong. Companies are trying to make their operations

more efficient amid serious labor shortages in some sectors.

     --MONTHLY FLUCTUATIONS

     Core private-sector machinery orders, which exclude volatile orders for

power generation equipment and ships, rebounded 8.2% on month in January after

slumping 9.3% (revised up from -11.9% due to annual revisions to seasonal

adjustments) in December, which was in payback for solid gains in the previous

two months.

     The increase was bigger than the MNI survey median forecast for a 6.6% rise

(forecast range: from +2.0 to +8.7%) and the largest since +12.2% in January

2016. Machinery orders tend to fluctuate widely from month to month: December's

drop was the sharpest since -13.9% in May 2014.

     The three-month moving average to January rose a solid 1.2% from the

previous three-month period, after falling 0.6% in October-December and rising

0.8% in n September-November.

     There were no large one-off orders in the core measure but three big orders

were placed for external demand in January, indicating exports of Japanese

chip-making machines remain strong.

     --PICKUP TREND REMAINS

     The Cabinet Office maintained its assessment that "machinery orders are

showing signs of a pickup."

     For January-March, the Cabinet Office revised down its projection for core

orders to a 1.5% quarter-on-quarter decline from a 0.6% increase, which would

now be the first drop in three quarters.

     But this forecast would be easily met even if core orders fell 4.5% on

month in each of February and March and core orders would show a 3.2% rise if

they were flat for the rest of the first quarter.

     Demand for boilers and turbines as well as aircraft is expected to rise in

Q1 while orders for industrial machines and electronics equipment are forecast

to slip, although the uptrend in those orders remains intact.

     Some manufacturers are facing capacity constraints due to labor shortages.

     In October-December, core orders rose 0.3% on quarter, revised up from a

0.1% drop reported last month.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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