UPDATE 3-Japan machine orders beat forecast, abate policy pressure
* July core machinery orders +4.6 pct vs forecast +1.5 pct * Reconstruction supports capital spending * Global slowdown, weak exports, strong yen cloud outlook * Analysts see Japan hitting soft patch later in 2012 By Tetsushi Kajimoto TOKYO, Sept 12 (Reuters) - Japan's core machinery orders, an indicator of future capital spending, rose far more strongly than expected in July, giving some respite to policymakers under pressure to prop up the world's third-largest economy after several weak data. The second consecutive monthly rise in core orders signalled rebuilding in the quake-ravaged northeast was underpinning capital spending, but Europe's debt crisis and slowing Chinese and U.S. economies cloud the outlook. The 4.6 percent rise in core orders, which excludes those for ships and power utilities, significantly exceeded a 1.5 percent rise expected by economists and followed a 5.6 percent gain in June, Cabinet Office data showed on Wednesday. Japan's capital spending has lacked momentum so far this year as companies postponed investment because of uncertainty over global growth prospects. An expected boost from post-disaster reconstruction has not flowed through as strongly as initially foreseen. Signs that the effects of the $230 billion rebuilding effort were tapering off have prompted the government to consider an additional stimulus budget for the next fiscal year starting in April 2013. "Japan must compile extra budget at some point in the future while examining the economic data for the April-June quarter," Prime Minister Yoshihiko Noda said on Wednesday. Slower capital spending and sluggish inventory caused downward revision to Japan's gross domestic product in April-June, although Japan's economy has so far outpaced growth of most Group of Seven countries. "The data indicates that capital spending is basically on a recovery trend, but considering weak exports and worries about the economic outlook, there is a possibility that firms will postpone their capital spending plans," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo. He added that the weak economy and the yen's rise against a weakened dollar could spur the Bank of Japan to act as soon as this month's meeting. SOFT PATCH A government official was cautious on the outlook as July's rise was partly helped by one-off orders of medium and large items such as metal process machinery and aircraft. Orders from manufacturers rose 12.0 percent in July, the fastest pace since December 2009, government data showed. . "We need to wait and see if the trend will continue in the coming months," the official told reporters. "The risk factor is further slowdown in overseas economies so we need to determine how it could affect Japan's economy." Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, rose 1.7 percent in July, against the 4.2 percent decline expected. Companies surveyed by the Cabinet Office have forecast that core orders would fall for a second straight quarter in July-September. Economists expect Japan to hit a soft patch in the latter half of this year as stimulus-driven consumer spending on items such as subsidised low-emission cars fades, reconstruction-related demand tapers off, and exports struggle due to slackening global demand. The OECD cut growth estimates for most G7 economies in 2012 last week due to weaker outlook on Europe, but notched up its forecast for Japan to 2.2 percent from 2.0 percent in May, just shy of 2.3 percent forecast for the United States. Economists also estimate Japan's growth at around 2 percent in the current fiscal year ending in March 2013, roughly in line with projections by the government and the central bank. Separate data from the BOJ showed Japanese wholesale prices fell 1.8 percent in the year to August, against a 1.9 percent drop expected by economists, posting a fifth consecutive month of annual declines reflecting easing oil prices. The central bank holds its next rate review on Sept. 18-19. Many market players expect the central bank will hold off on an easing until Oct. 30, when it reviews its long-term economic and price forecasts in a semi-annual outlook report.