Japan¡¯s core machinery orders in December rose slightly more than expected but remained down year-on-year, government data showed on Monday, although further gains are expected to be capped by global and domestic headwinds.

Core orders, a highly volatile data series regarded as a leading indicator of capital spending in the coming six to nine months, went up 2.7% in December from the previous month, Cabinet Office data showed.

That compared with the median forecast for a 2.5% rise by economists in a Reuters poll.

On a year-on-year basis, core orders, which exclude volatile numbers from shipping and electric utilities, declined 0.7%, smaller than the forecast 1.4% fall.

By sector, orders from manufacturers increased 10.1% in December from the previous month, lifted by chemicals industries and information and communication machinery. That followed a 7.8% decline in November.

Service-sector orders fell 2.2% after slipping 0.4% in the prior month, weighed down by a decline in orders from mail and transport as well as telecommunication industries.

For the January-March period, core machinery orders are expected to rise 4.6% quarter-on-quarter thanks to an increase in demand for motors and electronic and telecommunications equipment in unspecified industries, a Cabinet Office official said.

Still, the government retained its view that machinery orders had ¡°stalled¡± for 14 straight months, pointing to a 1.0% drop in core machinery orders for October-December period.

While overall appetite for capital investment is still strong, there are signs of weakening in the non-manufacturing sector as moves to normalize economic activity run their course, said Masato Koike, economist at Sompo Institute Plus.

¡°The pace of recovery will be restrained given the limited recovery in domestic demand and the lack of momentum in the overseas economy,¡± Koike said.