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TOKYO (MNI) – Japan’s core private-sector machinery orders are
likely to show a sharp 10.0% drop on month in September on a seasonally
adjusted basis, taking a breather after sharp gains in the previous two
months, a survey of economists conducted by Market News International
found.

The Cabinet Office will release September data on Thursday, Nov.
11.

Despite an expected slump in September orders, those for the
July-September quarter should show a steady gain, thanks to +10.1% in
August and +8.8% in July, posting 4th straight q/q rise.

Core private-sector machinery orders, which exclude volatile demand
from electric utilities and for ships, are viewed as a leading indicator
of corporate capital spending.

Looking at the longer-term trend, the Cabinet Office upgraded its
assessment for the first time in four months in October (based on August
figures), saying: “Machinery orders are picking up.”

This compared with its previous view held from June to September
(for the April to July figures) that “there are signs of a pickup.”

Another piece of data released recently suggest that September
machinery orders be soft.

Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset
Management, noted that machine tool orders in the domestic market rose
only 38.2% on year in September, significantly decelerating from a
123.8% gain in August.

But economists still believe that machinery orders and capital
investment remain on a recovery trend, supported by better corporate
profits.

The Bank of Japan’s quarterly Tankan business survey for September
showed that combined current profits at major firms are expected to grow
28.3% in fiscal 2010, improving sharply from the 6.3% drop in fiscal
2009.

Yoshiki Shinke, senior economist at Dai-Ichi Life Research
Institute, said, “Capital investment is expected to rise gradually and
support the economy for a while.”

Kyohei Morita, chief economist at Barclays Capital Japan, who
forecast September core machinery orders will fall by 11.6% m/m, said
July-September orders likely grew 9.1% q/q, above the Cabinet Office’s
projection of +0.8%.

Looking ahead, many economists are concerned about the negative
impact of the strong yen on machinery orders and capital investment.

“Looming uncertainty over economic growth and the yen’s
appreciation are likely to restrict corporate capital investment,” said
Shinke.

Thus the focus is on the Cabinet Offices projection for
October-December orders to be released with September data.

Some economists see core machinery orders will show no change in
the final quarter of 2010 from the previous quarter as the positive
impact of higher corporate profits may be offset by the drag of the
yen’s rise on exports and uncertainty over global demand.

For Q4 orders, Yoshimasa Maruyama, economist at Itochu Corp,
forecast a slight increase while Taro Saito, senior economist at NLI
Research Institute, projected a slight decline.

Meanwhile, September core orders in unadjusted terms are expected
to have increased 3.8% on the year, sharply slowing from +24.1% in
August and +15.9% in July.

skodama@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **

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