Core machinery orders, the key leading indicator of business investment in equipment, rebounded 2.7 percent in December on higher demand from manufacturers, as largely expected (consensus was 3.1 percent), after marking their first drop in three months with a sharp 4.9 percent drop in November. Demand for computers from many firms remains strong but there was a pullback in orders from some industries.

Core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, marked their 10th straight decline from a year earlier, down 0.7 percent, as expected, following a 5.0 percent slump in the prior month.

Core orders dipped 1.0 percent on quarter in the October-December quarter after falling 1.8 percent in July-September. It was weaker than the official forecast of a 0.5 percent rise provided in November. The median forecast was a 0.8 percent drop.

The Cabinet Office forecast that core orders would rise 4.6 percent in the January-March quarter for the first increase in four quarters, led by a sharp gain in orders from the manufacturing sector, which is expected to offset a slight drop in those from the non-manufacturing sector.

The Cabinet Office maintained its assessment after downgrading it in January 2023, saying,"Machinery orders are pausing."

Companies remain generally cautious about implementing their otherwise solid capital investment plans, as seen in the third straight quarterly decline in capex in the fourth quarter GDP data. There is demand for automation amid labor shortages as well as government-led digitization and emission control.

Econoday's Relative Performance Index (RPI) stood at minus 31, below zero, which indicates the Japanese economy is performing worse than expected after underperforming with a wider margin recently. Excluding the impact of inflation, the RPI was at minus 39.

Japanese core machinery orders are forecast to post a 3.1 percent rise on the month in December after marking their first drop in three months with a larger-than-expected 4.9 percent drop in November. The expected rebound is seen limited as firms are cautious about implementing what are otherwise solid capital investment plans, as seen in the fourth quarter GDP data. Core orders are estimated to have fallen 0.8 percent on quarter in October-December for a third straight decline, below the official forecast of a 0.5 percent gain. On the year, orders are expected to fall a slight 0.7 percent. Last month, the Cabinet Office maintained its assessment, saying,"Machinery orders are pausing."

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.