By Tetsushi Kajimoto
TOKYO (Reuters) - Japan's core machinery orders rebounded more than expected in December from the prior month's fall and are seen rising again this quarter - an encouraging sign of a pick-up in capital expenditure.
The Cabinet Office data showed on Thursday core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, grew 6.7 percent in December, the fastest month-on-month gain in six months.
It followed a 5.1 percent drop in November and was twice the 3.1 percent pace forecast in a Reuters poll.
Japanese policymakers hope capital spending will help drive growth in the world's third-largest economy and pull it out of deflation and stagnation.
"Capital expenditure is picking up due to a recovery in exports, and it will gather momentum in the coming months as external and domestic economic conditions firm up," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"Policies of U.S. President Donald Trump could pose a risk. If protectionism causes global trade to contract, that could hit Japan's domestic capital spending as well."
By sector, core orders from manufacturers rose 1.0 percent in December, following a 9.8 percent gain the previous month. Orders from the services sector rose 3.5 percent after a 9.4 percent decline in November.
Manufacturers surveyed by the Cabinet Office forecast that core orders will rise 3.3 percent in January-March from the previous quarter, after a 0.2 percent decrease in the final three months of last year.
Compared with a year earlier, core orders, which exclude ships and orders from electric power utilities, grew 6.7 percent in December, the data showed.
The Cabinet Office, however, maintained its assessment of machinery orders, saying the pick-up was stalling.
Data out next Monday is likely to show Japan's economy grew for a fourth straight quarter in October-December led by exports and capital spending, and the Bank of Japan sees the economy in gradual recovery through fiscal 2018.
However, the outlook is far from assured as protectionist talk from U.S. President Donald Trump impairs the outlook for global trade, possibly undermining the economic health of export-reliant Japan and investment by Japanese companies.
Trump and Prime Minister Shinzo Abe are scheduled to meet for talks later this week, where trade imbalances and currency valuations are in focus as Trump pursues an "America First" campaign.
(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer and Jacqueline Wong)