Japan’s machinery orders rebound sharply, reinforcing capex strength despite fiscal caution.
Summary:
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Core machinery orders surged 19.1% m/m in December vs 4.5% expected
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Annual growth jumped to 16.8% y/y vs 3.9% forecast
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Rebound follows sharp November declines
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Data support the BOJ’s outlook for continued economic expansion
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Corporate survey (report earlier) shows ongoing fiscal caution despite strong capex signal
Japan’s core machinery orders delivered a powerful upside surprise in December, underscoring renewed momentum in business investment and offering support to the Bank of Japan’s constructive growth outlook.
Core machinery orders, a volatile but closely watched leading indicator of capital expenditure, surged 19.1% month-on-month, far exceeding expectations for a 4.5% rise. On an annual basis, orders climbed 16.8%, again well above forecasts for a 3.9% increase. The strength marks a sharp reversal from November, when orders had slumped 11% on the month and fallen 6.4% year-on-year.
The scale of the rebound suggests November’s weakness was more a reflection of volatility than a meaningful deterioration in investment appetite. Machinery orders are often lumpy, but the magnitude of December’s rise points to solid underlying corporate demand. The data bode well for production and output in the months ahead, reinforcing expectations that Japan’s economy will continue expanding in line with the BOJ’s projections.
The strong capex signal also comes against a backdrop of equity market strength. Japanese stocks have been rallying amid expectations of expansionary fiscal policies under Prime Minister Sanae Takaichi, while government bond yields have edged higher on speculation of increased debt issuance.
However, the upbeat machinery data contrast with a more cautious tone in broader corporate sentiment. A recent Reuters survey showed two-thirds of Japanese firms remain concerned about fiscal discipline under the current administration. While worries about tensions with China have eased compared with the previous month’s poll, they remain a lingering source of uncertainty for some companies.
Overall, December’s machinery orders point to resilient business investment momentum, even as fiscal and geopolitical concerns continue to shape the broader corporate outlook.
