UPDATE 2-Japan machinery orders fall as yen, Europe cloud outlook

* Dec core machinery orders -7.1 pct vs f'cast -5.0 pct
* Firms forecast Jan-March machinery orders +2.3 pct q/q
* Strong yen, Europe's woes weigh on outlook for capex

By Stanley White
TOKYO, Feb 9 (Reuters) - Japan's core machinery orders
fell more than expected in December in a sign that a strong yen
and worries about slowing global growth may weigh on capital
spending in the coming months.
But manufacturers expect orders to rise modestly in the
first quarter of this year, suggesting that rebuilding in areas
devastated by last year's earthquake and tsunami may underpin
spending.
Core machinery orders, which help gauge capital spending,
fell 7.1 percent in December from the previous month, data from
the Cabinet Office showed on Thursday. The fall was deeper than
a median market forecast for a 5.0 percent decline.
Japan's economic growth is likely to pick up at the start of
this year, but policy-makers can ill afford to be complacent due
to worries that a persistently strong yen will force more
manufacturers to move production overseas and curtail domestic
investment in plant and equipment.
"Falls in machinery orders in December and October-December
were within expectations and unsurprising. Given uncertainty
over the global economy, corporations held back their capital
expenditure plans," said Yoshimasa Maruyama, chief economist at
Itochu Economic Research Institute in Tokyo.
"It's difficult to forecast the outlook on Europe's debt
problem as well as the domestic power supply issue, so
corporations are probably not ready to fully implement their
capex plans for the January-March quarter," he said.
Analysts expect Japan's economy to contract in the fiscal
year ending in March but rebound the following year as
reconstruction of the northeast coastal areas devastated by last
year's disaster makes headway.
But the Fukushima radiation crisis, triggered by the March
disaster, raised safety fears about nuclear power and has
resulted in most of Japan's reactors staying shut, heightening
fears of forced power rationing and temporary blackouts in the
summer peak for electricity demand.
Companies surveyed by the Cabinet Office expect core orders,
a highly volatile data series regarded as an indicator of
capital spending, to rise 2.3 percent in January-March after
falling 2.6 percent in the previous quarter.

Manufacturers said they expect their orders to rise 2.7
percent in January-March, which would follow a 2.8 percent
decline in October-December, the data showed.
Non-manufacturers, which include construction companies,
telecoms firms and property developers, forecast their orders
will gain 0.8 percent in January-March. They fell 2.3 percent in
October-December.
Japan's economy shrank 0.3 percent in the fourth quarter of
last year as a rising yen and disruptions to supply
chains from floods in Thailand weighed on factory output,
according to a Reuters poll. The data is due on Feb. 13 at 8:50
a.m. (Feb. 12 at 2350 GMT).
The stubbornly strong yen has put the Bank of Japan under
pressure to offer further monetary stimulus to support a fragile
recovery.
The central bank is seen preferring to stand pat at a policy
review ending next Tuesday but may consider further action if
the yen spikes to record highs or Europe's debt crisis triggers
a market shock.
The BOJ next meets on Feb. 13-14.
The yen's steady rise since last year risks weakening
Japan's economy, Prime Minister Yoshihiko Noda said on Thursday
as he called for the government and the central bank to
cooperate in managing the economy.
The government spent roughly 1 trillion yen ($13 billion) in
early November on undeclared forays into the currency market to
weaken the yen, finance ministry data showed this week. The
covert action was conducted for four days after an 8 trillion
yen unilateral intervention on Oct. 31, when the dollar hit a
record low of 75.31 yen.