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Economy in Brief

Japan's Orders Fall; Core Orders Are Flat- More Mixed Signals
by Robert Brusca  November 17, 2021

Japan's machinery orders fell by 10.4% in September after falling by 7.8% in August. Core orders are flat after falling by 2.4% in August. However, over 12 months, orders and core orders each are up by double digits. The year-on-year rank of that 12-month growth is at its 67.4 percentile for total orders and at its 89.9 percentile for core orders. Foreign orders have a strong 91.6 percentile ranking while domestic orders are below their median (below a ranking value of 50) at their 37.1 percentile.

Looking back to January 2020, a period of 1.6 years, total orders have risen by just 2.3%; core orders are up by just 0.8%. All of that gain is from foreign orders; they are higher by 33.1% while domestic-sourced orders are lower on balance by 11%.

These statistics describe tortured recovery of Japan's industrial sector. Most of the gain has been on the back of foreign growth where China and the U.S. are Japan's two largest trade partners. Japan's own domestic orders have lagged badly, still below their levels that was in force before the virus struck and spread.

Despite all this dour analysis, the chart shows that over the past year core orders have responded better than manufacturing and mining IP and better than the services sector. Both manufacturing and services have dived back to a no change market or logged a small decline.

While the economy watchers report has more up-to-date observations, its readings as of September show a current index that chronicles weak indexes that rank in their lower 25th percentile uniformly. The ranking for the growth of the economy watchers indexes is better for employment and retail. However, three economy watchers future index has an 84.6 percentile ranking on its 12-month growth and a 97.9 percentile ranking on its level.

Looking at the changes since January, we get results much like those for orders. The economy watcher current index is up by just 0.5% overall with declines in all sectors offset by a solid increase in employment and a strong rise in the future index. Hope springs eternal.

The Teikoku sector indexes were mixed in September with three stronger and two weaker. However, several Teikoku sectors show strong growth rankings. Manufacturing has a 90th percentile ranking on its growth rate; wholesaling and services each have rankings in their respective 80th percentiles. Retailing at a 43-percentile standing is below its median but not as weak as in the economy watchers framework. The index level rankings are varied but cluster around their 40th percentile which again is stronger than for the economy watchers. And oddly, the sector-by-sector changes since January 2020 are weak, in some cases weaker than the results for the economy watchers index.

We are left with the METI indexes and the LEI. The METI services and industry gauges are mixed for September while the LEI is weaker. However, the 12-month growth ranking for industry and services is weak in the lower 25 percentile for both and the index level ranking is worse(!) in the lower ten percentile of the range in each case. Both gauges also are lower compared to their January 2020 levels. These readings are in marked contact to the LEI that has an 81.1 percentile standing for its 12-month growth, and a 58.7 percentile standing for its level and has rising by 10.4% from its January 2020 level.

This survey of Japanese indicators shows some inconsistency among indicators, and that is not surprising when diffusion-type data are being used. But there are many more consistencies that underline how weak Japan's recovery has been and how sluggish the domestic economy has been. Some forward-looking indicators are positive. But there is little in the way of raw strength in Japan. The economy seems to be struggling on most fronts.

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