— Adds Official Comments, Background Throughout
— Japan Govt Upgrades View: Machine Orders Seen Picking Up
— Japan Apr Core Machinery Orders +9.4% Y/Y Vs Mar +1.2%
— Japan Apr Core Machinery Orders Post 2nd Y/Y Rise In Row

TOKYO (MNI) – Japan’s core private-sector machinery orders
continued to rise sharply, up by a seasonally adjusted 4.0% in April
from the previous month, posting the second straight m/m rise after
soaring 5.4% in March, the Cabinet Office said on Wednesday.

The April core figure came in stronger than the consensus forecast
of a 0.7% m/m gain.

From a year earlier, core private machinery orders jumped 9.4% in
April after +1.2% in March, which had been the first y/y gain in 21
months. They have recovered from the record 39.5% plunge marked in
January 2009.

The Cabinet Office upgraded its assessment of machinery orders for
the second month in a row, saying, “there are signs of a pick up.”

Last month it revised up its view, saying core orders “have stopped
falling.” Previously, it had said that “the downtrend is coming to an

“We have upgraded our assessment because of the second-straight
monthly and quarterly rises in core orders. Growth in April-June is also
expected to be strong,” a Cabinet Office official said.

“Outside the core order category, though, external demand is
showing a slower pace of improvement. We have to watch the recovery
trend in exports because their level is still way below recent peaks.”

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.

Last month the Cabinet Office said core orders for the April-June
quarter are estimated to rise 1.6% quarter-over-quarter after they
posted a 2.9% rise in January-March.

With the 4.0% rise in April, core orders for the second quarter
would show a strong 6.2% q/q gain even if orders were flat in both May
and June, the official said.

Core orders are still expected to post a year-on-year drop of -4.0%
in April-June vs. -1.8% in January-March and -14.0% in

In April, the core orders in the private manufacturing sector
slumped by 5.5% from the previous month to Y296.3 billion after rising
2.7% in March. It was the first month-on-month drop in five months.

“It was a drop after four months of gains. The trend shows that
this sector is picking up,” said the Cabinet Office official.

“While processing industries (automobiles, electronics, general
machinery) have begun to pick up, some material industries — chemicals
as well as iron and steel — have been pulled down by weak exports for
these products.”

The decrease in the sector was led by weaker orders from shipyards,
steel mills, information and communications electronic equipment makers
and metal product makers among others.

But the drop in core manufacturing orders was more than offset by a
rise core orders for the non-manufacturing sector excluding shipping
lines and power firms, which rose 5.3% to Y464.0 billion, posting the
second straight m/m rise surging 11.1% in March.

The rise in non-manufacturing demand was led by orders for
transportation, information services and real-estate, offsetting drops
in telecommunications and as well as finance and insurance, both of
which had shown gains in the previous month.

“Large-scale orders for rail cars made the biggest contribution to
the rise in non-manufacturing orders in April,” the official explained.

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.

The total non-manufacturing sector, including shipping lines and
power firms, rose 4.2% m/m, the third straight monthly rise, after
gaining 1.9% in March.

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 amount of orders for
non-manufacturers is much higher than that for manufacturers.

The telecommunications industry has been hit by stiff price
competition among mobile carriers but posted two straight monthly gains
through March before falling in April.

“Telecoms are hitting bottom now. The sector minus mobile carriers,
which accounted for about 70% of total telecom orders in April, posted
the third straight month-on-month rise,” the official said.

Orders from finance and insurance, whose capital expenditure for
merging computer network systems has run its course, had also shown
signs of a pickup, up two months in a row through March.

Outside the core domestic private sector, machinery orders from
overseas posted the first m/m drop in five months, down 3.7% in April at
Y740.5 billion after rising 3.9% in March.

** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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