— Adds Economist, Official Comments Throughout
— Japan July Core Machine Orders +4.6% M/M; MNI Fcast +1.5%
— Japan Govt Keeps View: Machine Order Showing Ups and Downs
— Japan July Core Machinery Order +1.7% Y/Y Vs June -9.9%
— Japan July Machine Orders From Overseas +3.0% M/M; June -9.8%

TOKYO (MNI) – Japan’s core private-sector machinery orders marked a
second straight month-on-month rise in July, showing some resilience
against the global slowdown thanks to relatively solid domestic demand,
data from the Cabinet Office showed on Wednesday.

Core orders — which exclude volatile demand from electric
utilities and for ships — rose 4.6% in July, following a 5.6% increase
in June and a 14.8% slump in May.

The June figure also beat the median forecast in an MNI survey of
economists for a 1.5% rise.

The sharp increase was led by a rebound in orders from the
manufacturing sector including steel mills and electric machinery
makers. Orders from non-manufacturers fell.

Orders from manufactures rose 12.0% m/m in July, the highest gain
since +13.8% seen in December 2009.

Yoko Nakagaki, Director of Department of Business Statistics at the
Cabinet Office, said the July orders from makers “are in line with”
upward revision of capital investment plans announced by the Ministry of
Finance on Tuesday.

MOF’s quarterly survey showed that manufacturers expect their
combined capital spending to rise 15.0% in fiscal 2012, revising up from
a 9.8% rise seen in the June poll.

The Cabinet Office maintained its assessment, saying that
“machinery orders are now showing ups and downs.”

In the July-September quarter, core orders are projected to decline
further by 1.2% following a 4.1% slide in the previous quarter,
according to the recent government forecast.

Even if orders fall 3.8% m/m in both August and September, the
Cabinet Office’s projection will be met, Nakagaki said.

Despite the solid increase, economists are not so optimistic about
the near-term prospects in the face of slower global demand as well
waning effects of government subsidies for buying low-emission vehicles
and building energy-saving homes, which have spurred domestic demand.

Junko Nishioka, chief economist at RBS Securities Co, says the
slightly stronger-than-expected reading of machinery orders still
underscore that orders are now in a soft patch due to a delayed economic
recovery in China and other key markets for Japan’s exports.

She added, “In line with such a development, the timing of a
renewed pick-up in the momentum of Japan’s machinery orders is most
likely to be delayed until the second half of fiscal 2012.”

The pace of year-on-year growth in new vehicle sales slowed to
+7.3% in August from increases of 36.1% in July 40.9% in June, 66.3% in
May and 92.0% in April.

In December the government revived subsidies for buying
low-emission vehicles. The program had been terminated in September
2010, which caused a year-long stagnation of domestic vehicle sales.

The program is scheduled to be terminated again in September.

Also until recently housing construction was supported by the
government’s revived temporary reward program for buying energy-saving
houses but the program has been terminated.

From a year earlier, core private machinery orders rose 1.7% in
July following a 9.9% decline in June.

Offshore orders, which are not part of core orders, increased 3.0%
from the previous month in July, marking the first rise in two months,
after a 9.8% drop in the previous month.

But Nakagaki said orders from overseas on the whole “show a sign of
moderate declining” as the July offsore orders were raised by temporary
major orders, adding, “a possible downward deviation of overseas demand
would be a risk factor.”

** MNI Tokyo Newsroom: 81-3-6860-4821 **

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