Japanese core machinery orders, the key leading indicator of business investment in equipment, posted the second straight monthly drop in January, down 3.5% (consensus -0.8%), after slipping 0.8% in December and rising 2.6%. Recent figures have been revised in an annual update to the seasonal adjustments. The decline in this highly volatile data series was led by weaker orders for chemical equipment from refineries as well as those for computers from automakers, information service providers, banks and leasing firms.

From a year earlier, core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, showed their fourth consecutive gain, up 4.4% (consensus +7.4%) after rising 4.3% previously.

There remains strong demand to upgrade factories and offices among many industries but lingering labor shortages and high construction costs are hampering smooth implementation of capital investment. Growing uncertainties over the health of the U.S. economy and global trade caused by the protectionist policy under the Trump administration.

The Cabinet Office maintained its assessment after upgrading it in the November report, saying, Machinery orders are showing signs of a pickup. Last month, it projected core orders would dip 2.3% on quarter in the January-March quarter after rising 2.9% in the previous three-month period. Following the annual update to the seasonal adjustments, it now expects core orders to fall 2.2% in the first quarter after a downwardly revised 2.3% gain in October-December.

Japanese core machinery orders, the key leading indicator of business investment in equipment, are forecast to post a second straight monthly drop in January, down 0.8% (range: -2.7% to +2.1%), after slipping back 1.2% in December to mark their first drop in three months.

There remains strong demand to upgrade factories and offices among many industries but lingering labor shortages and high construction costs are hampering smooth implementation of capital investment. Growing uncertainties over the health of the U.S. economy and global trade caused by the protectionist policy under the Trump administration could also slow capex.

From a year earlier, core orders, which track the private sector and exclude volatile orders from electric utilities and for ships, are expected to show fourth consecutive gain, up 7.4% after rising 4.3% previously.

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.