Japanese core machinery orders, the key leading indicator of business investment in equipment, posted their second straight drop in August, down 1.9% after edging down 0.1% in July and rising 2.1% in June. It was much weaker than the median economist forecast of a 0.3% drop.

From a year earlier, core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, fell 3.4% for the first drop in two months after an 8.7% gain and a 1.7% dip, also coming in much weaker than the consensus call of a 3.6% increase.

The Cabinet Office maintained its assessment, saying,"The pickup in machinery orders is pausing."

Capex plans are generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.

The Bank of Japan's quarterly Tankan business survey for September showed major firms projected their plans for business investment in equipment would rise a combined 10.6% on year, below consensus of 11.9%, in fiscal 2024 ending on March 31, 2025, somewhat maintaining the solid pace after jacking them up to a 11.1% increase in the June survey from a cautious 4.0% gain projected in March.

Smaller firms raised their combined capital spending plans to an impressive 2.6% increase, as expected, after projecting a 0.8% drop in June, which was still up from a 3.6% dip planned in March. Smaller firms tend to have conservative plans at the start of each fiscal year and revise them up later.

Japanese core machinery orders, the key leading indicator of business investment in equipment, are forecast to post their second straight drop in August, down 0.3% after edging down 0.1% in July and rising 2.1% in June.

From a year earlier, core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, are expect to rise 3.6% for the second consecutive increase following an 8.7% gain.

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.