Japan's machine tool orders rebound to JPY133.1b in June

This is the first monthly increase in three months as domestic demand surges whilst overseas markets remain strong

Japan's machine tool industry posted its first monthly increase in three months, with total orders reaching ¥133.1b (£870m) in June, according to the latest figures from the Japan Machine Tool Builders' Association.

The month-on-month rise of 3.5% marked the first time in two months that orders surpassed the crucial ¥130b threshold, signalling renewed strength in the sector that serves as a key indicator of manufacturing health globally.

The standout performance came from domestic markets, which surged more than 20% month on month to ¥39.9b, marking the first monthly increase in two months and bringing orders close to the ¥40b mark for the first time in three months.

The domestic revival was fuelled by companies rushing to place orders before the end of the fiscal first half, combined with increased capital investment from small and medium-sized enterprises that had received government subsidies.

Within domestic sectors, motor vehicle manufacturers led the charge with orders growing more than 40% month on month to ¥6.9b. However, both the automotive and semiconductor manufacturing equipment sectors—Japan's two largest sources of domestic demand—have yet to return to their previous peak levels.

Foreign orders totalled ¥93.2b, declining 2.5% from the previous month but marking the ninth consecutive year-on-year increase. Orders remained above the ¥90b level for the fourth month running, demonstrating the continued strength of overseas markets.

Asia emerged as the strongest regional performer, with total orders exceeding ¥45b for the fourth consecutive month. China maintained its robust demand whilst India continued steady performance. Vietnam showed particularly notable growth, with orders approaching ¥3b for the first time in eight months.

North America experienced its first monthly decline in three months, primarily due to the absence of large-scale orders across various sectors that had boosted previous months' figures. Despite the monthly drop, the region maintained relatively high order levels at ¥28.2b.

European orders showed a slight monthly increase to ¥15.9b but have yet to recover to the levels seen in the first half of 2024, reflecting ongoing economic challenges across the continent.

Despite the strong monthly recovery, year-on-year orders declined marginally by 0.5% – the first annual decrease in nine months. However, industry analysts noted this was primarily due to the absence of several large North American orders that had boosted June 2024 figures, rather than any fundamental weakening in demand.

The minimal annual decline, combined with the robust monthly performance, suggests underlying demand for machine tools remains firm, supported primarily by international markets.

Manufacturing Investment Momentum

The machine tool sector serves as a critical barometer for global manufacturing investment, as companies typically purchase new equipment when planning production expansions or modernisation programmes.

The June recovery, particularly in domestic orders, suggests Japanese manufacturers are gaining confidence about future demand and are willing to invest in new production capabilities despite ongoing global economic uncertainties.

The strong performance in Asia also reflects the region's continued industrialisation and the growing sophistication of manufacturing processes across emerging economies.

The return to monthly growth, combined with domestic orders approaching the ¥40b milestone, provides encouragement for Japan's machine tool manufacturers as they navigate the challenging global economic environment.

However, the industry faces continued headwinds from geopolitical tensions, supply chain disruptions, and varying economic performance across key markets. The fact that both automotive and semiconductor equipment sectors remain below peak levels suggests a full recovery may still be some way off.

The strong showing from emerging Asian markets, particularly Vietnam's notable improvement, indicates that manufacturers are diversifying their supply chains and investment patterns, potentially providing new growth opportunities for Japanese machine tool makers.