Market Outlook - BNP PARIBAS - Investment Services India

Japan: Polarisation in Machine Tool Orders
• Japan’s data on machine tool orders
confirm the growing polarisation between the
rate of growth in the newly emerging economies
and that in developed nations.
• The drivers of overseas demand for tools
are the emerging economies of Asia, especially
China. Indeed, Chinese orders in December
were above the former peak.
• Orders from the US and Europe, as well as
within Japan, remain so lacklustre that the level
in all three cases remains under 30% of their
former peaks.
• Despite concerns that fund flows into the
EMKs could be adversely impacted by
Washington’s plans to tighten banking
regulations, the fact that the US and Europe will
have to maintain their super-low interest rate
regimes argues against any drying up of these
flows.
Pronounced global polarisation
It is widely recognised that the economies of Asia ex-
Japan, led by China, are booming, while domestic
demand in the US and Europe is weak owing to
persistent balance sheet troubles. This dichotomy
between the newly emerging economies and the
developed nations is also clearly evident in Japan’s
data on machine tool orders, for which a country
breakdown is available (something that suggests the
direction of capital investment in each nation).
Weak domestically, strong overseas
According to our seasonally adjusted estimates, the
sum total of machine tool orders bottomed out in
March 2009 at just 14% of the former peak (October
2007), but the subsequent recovery pushed that
figure up to 43% in December. The driver of this
recovery has been overseas demand, which in
December surged 29.2% m/m, causing this category
to reach 55% of its former peak. Domestic demand in
December also rose sharply, by 21.6%, the first
increase in three months. However, the trend of this
recovery remains weak, so the level as of December
is still only 27% of its former peak, below the bottom
of the recession following the burst IT bubble. Even
though Japan is not saddled with balance sheet
troubles, its domestic demand (demand for capital
investment) remains weak.
Chart 1: Domestic Orders (sa, CY 2005=100)
120
Monthly
110
100
90
80
70
60
50
40
Quarterly
30
20
10
03 04 05 06 07 08 09
Source: JMTBA, BNP Paribas
160
140
120
100
Chart 2: Foreign Orders (sa, CY 2005=100)
80
60
40
Monthly
Quarterly
20
03 04 05 06 07 08 09
Source: JMTBA, BNP Paribas
160
140
120
100
80
60
40
20
Chart 3: Asia ex-Japan Orders (sa, CY
2005=100)
Quarterly
Monthly
0
03 04 05 06 07 08 09
Source: JMTBA, BNP Paribas
Ryutaro Kono/ Hiroshi Shiraishi 29 January 2010
Market Mover
23
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