Japan`s Machine Orders Rise Despite COVID-19 Spike

Japan’s machine orders play a crucial role in assessing the country’s economic vitality and the performance of its manufacturing sector. Japanese machinery orders rebounded in July as activity picked up despite a resurgence of virus infections that cloud the business.

Core machine orders, an indicator of capital spending in months ahead, gained 6.3% from the prior month when they fell 7.6%, the Cabinet Office reported Thursday. Analysts had forecast a 2.0% rise. Orders from both manufacturers and service businesses increased.

Despite the gains, overall bookings were still 16.2% below last year’s level in July and the government kept its assessment that orders are on a downward trend. A government official cited the data’s volatility as a reason not to conclude from a single month’s results.

Key Insights

• “Business investment isn’t likely to come back anytime soon because what happens with the virus is difficult to predict,” said economist Atsushi Takeda at Itochu Research Institute. “Yes, the numbers gained for a month in July, but it’s hard to see that continuing.”
• The data showed orders from abroad rose 13.8% from the prior month, a gain the Cabinet Office official attributed to revived activity in overseas markets, which would be a positive sign for Japan’s export-reliant economy.
• A resurgence of infections in Japan has calmed in recent weeks, but the virus’s unpredictability may make firms cautious about spending plans, although investment in work-from-home technology could help demand. There’s also a potential for spending to make supply chains more shock-resilient, given disruptions from the pandemic.
• Prime Minister Shinzo Abe’s successor is scheduled to be selected next week. Yoshihide Suga, the leading candidate to take over, has vowed to continue to strike a balance between virus response measures and reopening the economy. By keeping a close eye on Japan’s machine orders, stakeholders can gain valuable insights into the country’s economic trajectory and anticipate the impact on global markets.

What Bloomberg’s Economist Says

“A solid rebound in Japan’s machine orders in July suggests the deepest cutbacks in capital expenditure in this cycle may be in the past…Even so, the recovery in machine orders is set to be slow.”

Originally published on www.bloomberg.com