Core machinery orders came in much weaker than expected in November, down 4.9 percent on the month for the first drop in three months after a surprise 0.7 percent rise in October, amid uncertainty over global growth and a pullback in computer demand after recent gains. November's seasonally adjusted value fell to ¥816.7 billion, hitting the lowest amount since ¥804.3 billion in April 2021.

Year-over-year, orders fell by a larger-than-expected 5.0 percent following a 2.2 percent fall in the prior month. This is the ninth straight month of annual contraction. Core orders exclude electric utilities and ships and are considered a leading indicator of business investment.

The Cabinet Office maintained its assessment in November's report that"Machinery orders are pausing."

Companies are generally cautious about implementing their otherwise solid capital investment plans for fiscal 2023 ending next March, as seen in the second straight quarterly decline in capex in the July-September GDP data. There is strong demand for automation amid labor shortages as well as government-led digitization and emission control.

Nevertheless, orders from manufacturers plunged 7.8 percent on the month in November after rising 0.2 percent in October while those from non-manufacturers in the core measure edged down 0.4 percent after rising 1.2 percent the previous month.

November orders were led lower by falling demand for boilers and turbines from"other manufacturers" in payback for an increase in the prior month as well as for cranes and conveyors from general and production machine makes. Orders for computers from telecommunications firms rose while those from financial firms and information service providers fell.

Machinery orders in the fourth quarter are unlikely to hit the official projection. Last month, the Cabinet Office forecast that core orders would edge up 0.5 percent in the October-December quarter, led by a sharp rebound in orders from the non-manufacturing sector, which was expected to offset a second straight quarterly drop in those from the manufacturing sector. In order to meet this forecast, core orders would have to rebound by 7.2 percent in December.

Despite the weak results, Econoday's Relative Performance Index (RPI) stands at plus 4, just above zero, which indicates that recent Japanese data on net are coming in within consensus forecasts. Likewise, when excluding the impact of inflation, the RPI is also near zero at minus 5.

Japanese core machinery orders, the key leading indicator of business investment in equipment, are forecast to post their first drop in three months, down 1.5 percent on the month in November amid slowing global growth and despite strong digitization demand for computers, after recording a surprise 0.7 percent rise in October. Some firms are cautious about implementing their solid capital investment plans, as seen in the second straight quarterly decline in capex in the July-September GDP data. Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, are expected to mark a ninth straight year-over-year drop, down a slight 0.6 percent, after falling 2.2 percent in each of the previous two months.

Last month, the Cabinet Office maintained its assessment, saying,"Machinery orders are pausing." It forecast core orders would rise a modest 0.5 percent on quarter in October-December for the first increase in three quarters after falling 1.8 percent in April-June.

Machine Orders are the total value of new private-sector purchase orders placed with manufacturers for machines excluding volatile items such as ships and utilities. It is a leading indicator of production. Analysts consider the data an indicator of capital spending. Rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.

It is a leading indicator of production. Rising purchase orders signal that manufacturers will increase activity as they work to fill the orders. The importance of machinery orders cannot be overstated given the economy's dependence on exports. The purpose of these data is to get a picture of machinery manufacturers' order books and to collect basic material for analyzing the direction of the economy through an early understanding of trends in capital investment in machinery.