— Adds Details, Background From 12th Paragraph
— Japan Dec Core Machinery Orders +1.7% M/M Vs Nov -3.0%
— Japan Dec Machine Orders Weaker Than MNI Consensus +5.0%
— Japan Q1 Core Machinery Orders Seen +2.7% Q/Q
— Japan Oct-Dec Core Machinery Orders -6.9% Q/Q Vs Govt F’cast -9.8%
— Japan Dec Machinery Orders Post 1st Rise in 4 Months
— Japan Dec Core Machine Orders Ex-Handsets -0.9% M/M Vs Nov +0.8%
— Japan Dec Core Machinery Orders -1.6% Y/Y Vs Nov +11.6%
— Japan Dec Core Machinery Orders Post 1st Y/Y Fall in 6 Mths
— Japan 2010 Core Machinery Orders +4.6% Vs -26.9% in 2009
— Japan 2010 Core Machinery Orders Post 1st Rise in 4 Years

TOKYO (MNI) – Japan’s core private-sector machinery orders rose for
the first time in four months in December and they are expected to
extend their growth in the first quarter, as the economy moves out of a
temporary lull, data from the Cabinet Office showed on Thursday.

The headline core machinery orders rose a seasonally adjusted 1.7%
in December following declines of 3.0% in November, 1.4% in October and
10.3% in September.

The December core figure came in weaker than the 5.0% m/m rise
expected in the median forecast in a MNI survey of economists.

Core machinery orders, which exclude volatile demand from electric
utilities and for ships, are forecast to rise 2.7% in the first quarter
from the previous three months, the first rise in two quarters,
according to a survey of companies by the Cabinet Office.

In the October-December quarter, core private-sector machinery
orders, which are viewed as a leading indicator of corporate capital
investment, fell 6.9% from the previous quarter, compared with the
initial projection for -9.8%.

In December, core private machinery orders fell 1.6% from a year
earlier following +11.6% in November, posting the first fall in six
months.

The Cabinet Office maintained its longer-term assessment, saying:
“Machinery orders are picking up but there are weak spots in the
non-manufacturing sector.”

“We didn’t consider upgrading our view because while orders for the
manufacturing sector stay on an uptrend, those for the non-manufacturing
sector remain weak, as seen in our January-March forecast,” a Cabinet
Office official said.

Core private orders minus mobile handsets, a fairly new reading
used as a guide to the underlying orders trend, fell 0.9% m/m in
December following a 0.8% rise in November, posting the first fall in
three months.

In another sign of an economic recovery from what appears to be a
temporary dip in the fourth quarter of 2010, the latest government data
showed that production at the nation’s factories and mines rose a
seasonally adjusted 3.1% in December from the previous month, bringing
the industrial output index up to 94.6, the highest since 94.8 marked in
July 2010.

Japanese exports also rose 13.0% in December from a year earlier to
Y6.11 trillion, faster than a 9.1% rise in November, as shipments to
China hit a record high of Y1.285 trillion in the final month of 2010.

Just last month, the Cabinet Office downgraded its longer-term
assessment, noting the weakness in orders from non-manufacturers. It was
the first downgrade in a year.

The main driver behind machinery orders is a steady increase in
demand from manufacturers of general machinery and automobiles, which
has been underpinned by a recovery in overseas demand.

Core orders from the manufacturing sector slipped 1.9% m/m to
Y304.4 billion in December, posting the first drop in three months,
after rising 10.6% in November.

In January-March, core orders from manufacturers is projected in
the Cabinet Office survey to rebound by 16.1% from the previous quarter,
when they slumped 4.4%.

But the key to a rise in total core domestic private-sector orders
is a recovery of demand from non-manufacturers, including telecom
carriers and transportation firms, because the total demand from
non-manufacturers is much larger than that from manufacturers.

Orders from the non-manufacturing sector excluding demand for ships
and from power firms totaled Y429.2 billion in December, up 3.9% m/m,
the first rise in three months after -10.5% in November, -8.7% in
October and +3.0% in September.

In January-March, however, core orders from the sector is projected
to post the second quarterly decline, down by 5.8%, after falling 10.1%
in October-December.

In December, the gain in core non-manufacturing orders was led by a
31.2% rebound m/m in orders for finance and insurance, which was the
first rise in three months following a 10.6% drop in the previous month.

Orders from the telecommunications industry also marked the first
gain in three months, up 7.3% m/m in December vs. -20.0% in November.
The industry has been hit by stiff price competition among mobile
carriers, with demand fluctuating sharply in recent months.

In February 2010, core orders for the non-manufacturing sector fell
to a recent low of Y393.5 billion, close to the lowest level of orders
from non-manufacturers at Y369.0 billion recorded in May 1987.

Outside the core domestic private sector, machinery orders from
overseas totaled Y724.1 billion in December, down 7.7% m/m, after
falling 17.8% in November and rising +16.0% in October.

But in October-December, foreign orders rose 3.0% from
July-September, marking the sixth straight quarterly gain. It was the
longest period of increases since 1987, when the Cabinet Office began
compiling machinery orders under the current data formula.

From a year earlier, foreign orders rose 3.5% in December, slowing
further from the 24.4% gain but marking the 14th consecutive y/y rise.

In 2010, core machinery orders rose 4.6% from 2009, when they
dropped 26.9%. It was the first increase in four years.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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