Japan's core machinery orders, a key leading indicator of business investment in equipment and software, came in weaker than expected in August, posting the second straight month-on-month drop in light of a continued pullback in demand for computers following recent gains. Such demand has been backed by the need to update the Windows operating systems as well as the general trend to digitize operations. Orders for computers from financial, lasing and other industries rose in August, reflecting widespread labor shortages.

The three-month moving average of the core orders marked the third straight drop, prompting the Cabinet Office to downgrade its view on the indicator for the first time since the May 2024 report. It now says the pickup in machinery orders are"stalling," compared to the previews statement that orders were"showing signs of a pickup."

JAPAN AUG CORE MACHINE ORDERS -0.9% M/M (JULY -4.6%); MEDIAN FORECAST +0.7% (RANGE -2.5% TO +3.1%)

JAPAN AUG CORE MACHINE ORDERS +1.6% Y/Y (JULY +4.9%); 11TH STRAIGHT RISE MEDIAN FORECAST +4.7% (RANGE +1.5% TO +6.5%)

JAPAN GOVT DOWNGRADES VIEW: PICKUP IN MACHINE ORDERS STALLING VS. MACHINE ORDERS SHOWING SIGNS OF PICKUP

JAPAN AUG CORE MACHINE ORDERS MANUFACTURING SECTOR -2.4% M/M (JULY +3.9%); 1ST FALL IN 2 MONTHS

JAPAN AUG CORE MACHINE ORDERS NON-MANUFACTURING SECTOR -6.4% M/M (JULY -3.9%); 2ND STRAIGHT DROP

JAPAN AUG MACHINE ORDER M/M FALL LED BY CONTINUED PULLBACK IN DEMAND FOR COMPUTERS AFTER RECENT GAINS

Japan’s core machinery orders, a key leading indicator of business investment in equipment and software, are expected to post a slight 0.7% rise on the month in August for the first increase in two months after a 4.6% slump in July when orders for computers saw a pullback after recent gains. Demand for digitizing operations remains strong, however, amid widespread labor shortages.

Last month, the Cabinet Office maintained its assessment, saying, “Machinery orders are showing signs of a pickup.”

From a year earlier, core orders, which exclude those from electric utilities and for ships, are expected to have climbed 4.7%, extending their run of year-on-year gains to an 11th straight month.

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.