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Current Situation and Future

Prospect of Japanese

Machinery Industry

Takayuki Sumita

Executive Director,

Japan Machinery Center Brussels Office

May, 2010

1

1)Mid-term

(y on y % in real terms)

01 02 03 04 05 06 07 08 09 10

GDP Growth -0.8 1.1 2.1 2.0 2.3 2.3 1.8 -3.7 (-2.6 ) (1.4) predicted

Growth in Capital Expenditure

-2.4 -2.9 6.1 6.8 6.2 4.7 1.3 -6.8

2) Short-term

(q on q % in real terms)

(year) 2008 2009

(quarter) 1-3 4-6 7-9 10-12 1-3 4-6 7-9 10-12

GDP Growth 0.7 -1.1 -1.3 -2.7 -3.6 1.5 -0.1 0.9

Growth in Capital Expenditure

4.6 -1.2 -3.9 -7.3 -8.7 -4.2 -2.6 0.9

Source: Cabinet Office

１．Current Japanese Economy [1-1] Growth Ratio

2

[1-2] Machinery Industry 1) mid-term

Trend in Purchase Order for Machinery

Foreign

demand

0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

30

35

１９８７年 １９９０年 １９９３年 １９９６年 １９９９年 ２００２年 ２００５年 ２００８年

外需

内需

外需比率

Year

Domestic

demand

Ratio of

Foreign

demand

Trillion Yen

Source: Statistics on Purchase order for Machinery

3

2008 2009 （10 bil. Yen）

1-3 4-6 7-9 10-12 1-3 4-6 7-9 10-12

Total 840 794 722 577 484 453 501 540

change (q on q in ％） +4.7 -5.5 -9.1 -20.1 -16.1 -6.3 +10.4 +5.8

Domestic Demand 481 460 420 369 364 330 341 335

Priavate sector 369 355 328 280 260 257 251 249

change (q on q in %) +3.2 -4.0 -7.5 -14.7 -6.9 -1.3 -2.4 -0.5

Demand from Manu. Ind.

143 144 128 99 69 76 69 81

change (q on q in %) -3.1 +0.4 -10.9 -22.4 -31.1 +10.8 -8.7 +17.8

[1-2] Machinery Industry 2) short-term

Year

Quarter

Source: Statistics on Purchase order for Machinery

4

Construction

Equipment

Machine

Tools

Equipment for

Manufacturing

Semiconductors

0

5000

10000

15000

20000

25000

30000

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9

輸出

国内

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9

輸出

国内

0

500000

1000000

1500000

2000000

2500000

97 98 99 0 1 2 3 4 5 6 7 8 9

[1-3] Specific sectors in Machinery Industry 1) long-term upper; export

lower; domestic

year

year

year

(hundred million yen)

(million yen)

(million yen)

Purchase Order

Source：Japan Construction Equipment Manufacturers Association

0

5000

10000

15000

20000

25000

30000

90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9

輸出

国内

Source: Japan Machine Tool Builders’ Association

Source: Association for SC Manufacturing Equipment

5

0

50000

100000

150000

200000

250000

1月 2月 3月 4月 5月 6月 7月 8月 9月 10月 11月 12月

07年

08年

09年

10年

0

50000

100000

150000

1月 2月 3月 4月 5月 6月 7月 8月 9月 10月 11月 12月

07年

08年

09年

10年

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1月 2月 3月 4月 5月 6月 7月 8月 9月 10月 11月 12月

07年

08年

09年

10年

2) short-term (Construction, Machine tools, SC manufacturing)

Most Recent Figure

Comp. with 2009(%)

Comp. with 2008(%)

Jan. 2010

+15.7%

- 43%

Feb. 2010

+217%

- 54%

Feb. 2010

+1000%

- 23%

(million yen)

(million yen)

(million yen)

Source: Association for SC Manufacturing Equipment

Source: Japan Machine Tool Builders’ Association

Source：Japan Construction Equipment Manufacturers Association

Construction

Equipment

Machine Tools

Equipment for

Manufacturing

Semiconductors

Purchase

Order (year)

2007

2008

2009

2010

(month)

(year)

2007

2008

2009

2010

(month)

(year)

2007

2008

2009

2010

(month)

6

2008 2009 2010

production shipment inventory

Index of production, shipment and inventory of

ICT industry (100=year 2005)

2) short-term (Electric and Electronics Industry)

(month)

(year)

Source: Industrial Index of Production, METI

7

Diffusion Index of Major Companies on general business Conditions (Favorable minus

Unfavorable)

2008 2009 2010

09 12 03 06 09 12 03 06(Prospect)

Manufacturing -3 -24 -58 -48 -33 -25 -14 -8

General Machinery 2 -22 -64 -63 -50 *-30 *-19 *-8

Electric Machinery -9 -37 -69 -52 -33 -17 -12 2

Automobiles 5 -41 -92 -79 -49 -21 -2 -12

Non-manufacturing 1 -0 -31 -29 -24 -22 -14 -10

Total 0 -16 -45 -39 -28 -23 -14 -9

note: * indicates that the classification has been changed since Dec. 09 on General Machinery

Change in the amount of Capital Expenditure of All Companies (y on y in %)

year ２００９ ２０１０

months 01-06 07-12 01-06 07-12

manufacturing -32.8 -27.4 0.1 -5.3

non-manufacturing -11.1 -8.7 -5.5 -12.1

Total -20.4 -16.0 -3.5 -9.8

note: Figures after the second half of 2009 are projected ones.

2. Future Prospect [2-1] General

Source: Short term Survey; Bank of Japan

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Prospect on Purchase Order

２００８(actual) ２００９(estimated) ２０１０(predicted)

Dom. Foreign Total Dom. Foreign Total Dom. Foreign Total

Total (10 bil. Yen) 342 220 562 280 179 459 289 199 489

change (y on y in %) -18.3 -18.5 -18.3 +0.3 +11.3 +6.5

Boiler/Engine (10 bil. yen)

101 79 180 111 59 170 111 68 179

change (y on y in %) +10.0 -25.0 -5.4 0 +15.0 +5.2

Chemical Eq. (10 bil. yen)

82 68 150 65 72 137 65 75 140

change (y on y in %) -20.0 +5.0 -8.6 0 +5.0 +2.6

[2-2] Machinery Industry 1) Industrial machinery

Source; Japan Society of Industrial Machinery Manufacturers

9

Prospect on Production

trillion yen

２００７ ２００８ ２００９ ２０１０

actual actual estimated predicted

(Producer) (y on y) (y on y) (yon y)

Whole 236 223 -5% 190 -15% 200 +5%

Japanese

51 48 -7% 39 -19% 40 +5%

Domestic

20 19 -8% 14 -25% 15 +6%

2) Electric and Electronic Machinery

Source：Japan Electronics and Information Technology Industries Association

10

（Industrial Machinery)

-Domestic; Capital Expenditure for complying with environmental regulation

and for energy saving

-Global;

Surge in demand related to projects to build infrastructure in such areas

as power plant, desalination, industrialization and development of natural

resources especially in emerging countries and resources abundant countries,

some which has been suspended due to the financial crisis

(Electric and Electronics Machinery)

- Equipment related to energy saving data center

- Machinery or components used for Smart Grid

- Equipment related to Photovoltaic Energy

- Energy Efficient TVs and refrigerators

- 3D TVs

- Low price PCs, TVs and mobiles with limited function especially in emerging

countries

[2-3] Expected areas of future growth

Source; Japan Society of Industrial Machinery Manufacturers, etc.

11

Source; Statistics on Balance of Payment , Ministry of Finance

(Mil. Yen)

Direct Investment to Foreign Countries (Net)

Change in Domestic Capital Expenditure (y on y in %)

3. Transfer of Production Site [3-1] Investment Trend

Source; Quarterly Statistics on Corporate

Activities, Ministry of Finance

All industry,

All size

12

Ratio of Overseas Production

＝Sales by Foreign Entity/(Sales by Foreign Entity +

Sales by Domestic Entity)

[3-2] Ratio of Overseas Production

12.8%

20.7%

39.2%

17.0%

0

5

10

15

20

25

30

35

40

45

01 02 03 04 05 06 07 08

General MachineryElec. MachineryTransportationTtl of companies with overseas productionGeneral Ttl of Companies

(%)

(Fiscal year

)

Source：Survey on Overseas business Activities

Ministry of Economy, Trade and Industry

30.4%