— Adds Official Comments, Background Throughout
— Japan Core Machinery Orders Post 3rd M/M Rise In Row
— Japan Govt Upgrades View: Machine Orders Picking Up
— Japan Aug Core Machine Orders Ex-Handsets +11.2%; July +6.4%
— Japan Aug Core Machinery Orders +24.1% Y/Y Vs July +15.9%
— Japan Aug Core Machinery Orders Post 2nd Y/Y Rise In Row

TOKYO (MNI) – Japan’s core private-sector machinery orders surged
by a seasonally adjusted 10.1% in August from the previous month,
posting the third straight monthly rise, after gains of 8.8% in July and
1.6% in June, the Cabinet Office said on Wednesday.

The latest core figure came in much stronger than the consensus
forecast for a 3.9% m/m drop (forecast range: -8.0% to +1.9%).

Compared to a year earlier, core private machinery orders rose
24.1% in August, the fifth gain in the last six months, after rising
15.9% in July.

Looking at the longer-term trend, the Cabinet Office upgraded its
assessment for the first time in four months, 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.”

“There were some large-scale orders in August that pushed up the
total figure but even after excluding them, machinery orders still
posted a gain, indicating they have a firm tone,” said a Cabinet Office
official.

If core machinery orders were unchanged in September from August,
they would post a 13.6% rise in July-September from the previous
quarter, much higher than the 0.8% forecast by the government earlier,
he said.

While demand from the general machinery and electrical machinery
sectors has been on an uptrend, orders from automakers plunged 16.8% m/m
in August, the first drop since -0.1% in April and the sharpest decline
since -16.9% in June 2009.

“It appears that carmakers slowed capex, as it was well known that
the government was going to end its subsidy for buying fuel efficient
vehicles in September, as planned,” the official said.

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.

Core private orders minus mobile handsets, a fairly new reading
used as a guide to the underlying orders trend, jumped 11.2% month on
month in August after +6.4% in July, +6.1% in June and -13.3% in May.

Core orders in the private manufacturing sector marked the third
straight m/m rise in August, jumping 12.5% from the previous month to
Y349.0 billion after rising 10.1% in July.

The increase in the sector was led by stronger orders from
non-ferrous metals, iron and steel, shipbuilding, petroleum and coal
products, electrical machinery as well as general machinery.

There was a large order from the iron and steel sector for boilers
and turbines while the non-ferrous metal industry placed a large order
for nuclear power plant facilities, the official said.

Orders from the non-manufacturing sector excluding shipping lines
and power firms marked the second straight m/m rise, up 8.3% m/m at
Y490.9 billion in August following a 8.1% rise in July.

The gain in non-manufacturing demand was led by higher orders from
mining, transportation, real estate and information services.

There was a large order for chemical machinery from the “other
non-manufacturing” category while there were some big orders for boilers
and turbines from power companies, the official said.

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, surged 30.8% m/m in August, posting the third straight m/m
gain after rising 4.9% in July, due partly to a jump in orders from
power companies.

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.

The telecommunications industry has been hit by stiff price
competition among mobile carriers, with demand fluctuating up and down
in recent months. Orders from the sector fell 1.1% m/m in August after
+3.4% m/m in July, -6.4% in June and +2.2% in May.

Meanwhile, orders from finance and insurance firms, whose capital
expenditures for merging computer network systems had largely run its
course, fell by 18.0% m/m in August after +28.3% in July, -8.6% in June
and +3.9% in May.

Outside the core domestic private sector, machinery orders from
overseas showed the first m/m drop in four months, down 3.7% in August
at Y769.7 billion after rising 2.6% in July. In April orders from other
countries fell 3.7%, the first drop in five months.

“Our graph shows that orders from overseas are top-heavy now, in
line with the general perception that demand from some countries is
slowing,” said the official.

Foreign orders still rose 68.9% in August from a year before, up
from +50.2% in July.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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