Japanese core machinery orders, the key leading indicator of business investment in equipment, posted their third straight month-on-month drop, down 0.7% (vs. consensus +2.1%), on a pullback in orders for computers from many industries after recent solid gains and weaker demand for boilers/turbines, centrifuges, cranes/conveyors and industrial robots. The surprise drop followed decreases of 1.9% in August and 0.1% in July and was much weaker than the lowest economist forecast of a 0.8% dip.

Likewise, the core measure slumped 1.3% on quarter in the July-September period largely in payback for constantly strong demand for computers seen earlier this year. It was well below the median economist forecast of a 0.3% fall and the official projection of a 0.2% rise made three months ago. It followed a 0.1% dip in April-June and a 4.4% rise in January-March (consensus was -0.3%). The Cabinet Office forecast core orders would post a sharp 5.7% rebound in the October-December quarter to more than make up for the drops seen in the previous two quarters. Capex plans are generally supported by demand for automation amid widespread labor shortages as well as government-led digital transformation and emission control.

The Cabinet Office maintained its assessment for the fourth consecutive month, saying,"The pickup in machinery orders is pausing" after downgrading it in the April data.

From a year earlier, core orders from the private sector excluding volatile orders from electric utilities and for ships unexpectedly fell, down 4.8%, after falling 3.4% in August and rising 8.7% in July. It was much weaker than the median economist forecast of a 0.9% rebound and below the forecast range of -2.9% to +3.4%.

Japanese core machinery orders, the key leading indicator of business investment in equipment, are forecast to post their first month-on-month increase in three months, up 2.1% (at least one economist calls for a dip), after a 1.9% drop in August, backed by generally solid capex plans for fiscal 2024 ending in March 2025. But the core measure is expected to fall back 0.3% on quarter in the July-September period, failing to meet the official projection of a slight 0.2% rise and following a 0.1% dip in April-June and a sharp 4.4% rebound in January-March.

From a year earlier, core orders from the private sector excluding volatile orders from electric utilities and for ships are expected to rise 0.9% after falling 3.4% in August and rising 8.7% in July.

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.