UPDATE 3-Rise in Japan machine orders bodes well for capex

* April core machinery orders up 4.0 pct vs forecast 1.0 pct

* Govt upgrades assessment, says orders show signs of pickup

* Outlook uncertain due to euro crisis – analysts
(Adds details)

By Rie Ishiguro

TOKYO, June 9 (BestGrowthStock) – Japan’s core machinery orders rose
more than expected in April, suggesting solid exports to Asia
will prompt companies to gradually increase capital spending.

The rise underscores the view that the economy is on course
for a moderate recovery. That bodes well for Japan’s new
government led by Naoto Kan, who must juggle the task of reining
in a huge public debt while keeping the economic recovery from
stalling. [ID:nTOE65702H]

“Capital spending is clearly bottoming out and heading for an
improvement,” said Kyohei Morita, chief economist at Barclays
Capital Japan.

“Japan’s economy grew very strongly in the first quarter but
the strength was driven by government stimulus. In the second
quarter, economic growth will slow, but we’ll see the recovery
broaden with strength in exports spreading to capital spending.”
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Graphic of machinery orders http://r.reuters.com/vut88k
More stories on the Japanese economy [ID:nECONJP]
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Core private-sector machinery orders, a highly volatile
series regarded as a leading indicator of capital spending, rose
4.0 percent in April, the Cabinet Office said on Wednesday.

That was bigger than economists’ median forecast for a 1.0
percent increase and followed a 5.4 percent rise in March.
[JPMORD=ECI]

The Cabinet Office raised its assessment of orders to say
they are showing signs of picking up. The recovery is spreading
more broadly as well, an official at a government agency said,
noting orders from nonmanufacturers led the overall growth.

Still, the pick up is from a very low base, Credit Suisse
said in a note.

“The value of orders still remains below the bottom of the
previous three contraction periods,” it said. “The data confirms
the delay in the recovery of corporate capex spending, in our
view.”

Other analysts noted that companies still have excess
production capacity and are wary of spending, a factor partly
borne out by bank lending figures this week that showed the
biggest annual fall in nearly five years. [ID:nTOE6190AI]

Foreign orders, which fell 3.7 percent in April, “are
sustaining an uptrend, but the pace of rises is slowing down”,
the government official said.

“There is a risk that if Europe’s fiscal troubles and
financial market conditions worsen further and have an impact on
the global economy, these could reduce Japanese corporations’
willingness to make capital investments,” said Yoshiki Shinke, a
senior economist at Dai-ichi Life Research Institute.

“The data is a positive sign for the economy but domestic
demand still lacks strength and financial markets remain
unstable. The Bank of Japan is unlikely to change its policy.”

HESITANT TO SPEND

In addition, the broader investment picture is less than
rosy, said Tetsuya Miura, chief market analyst at Mizuho
Securities.

“Machinery investment may be improving but companies are not
yet boosting their investment in construction, meaning
manufacturers are not building plants. Financial markets won’t
think much of that kind of improvement,” Miura said.

The Tokyo stock market’s Nikkei average (.N225: ) closed at a
six-month low on Wednesday, hurt by jittery sentiment.

The government is set to outline details this month of its
strategy to boost the economy by supporting new areas of growth
such as the environment, healthcare and tourism.

To underscore its cooperation with the government, the BOJ
outlined a new loan programme last month aimed at encouraging
commercial banks to lend more to industries with growth
potential. It is expected to announce details of the scheme after
a policy-setting meeting next week. [ID:nTOE64K025]

But analysts say the focus now is how the government can
achieve growth and fiscal reform at the same time.

Japan emerged from recession last year with economic growth
in the first quarter this year outpacing that of the United
States and Europe as companies benefited from strong exports to
emerging Asian economies. Revised figures on first-quarter gross
domestic product are out on Thursday. [ID:nTOE6190A4]

Economists expect growth to moderate in the second quarter as
the stimulus effect of government tax incentives for low-emission
cars and electronics on consumption fade.

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(Editing by Hugh Lawson and Michael Watson)

UPDATE 3-Rise in Japan machine orders bodes well for capex