Japanese core machinery orders in December were up 1.7% from November, the Cabinet Office said, the first rise in four months but well short of the 5.3% jump expected by economists surveyed by Dow Jones Newswires and the Nikkei.

The Cabinet Office on Thursday also forecast that private-sector core orders-excluding sources of volatility such as demand for ships-8212;will increase 2.7% in the January to March quarter, which would be the first period rise in two quarters.

The data follow a string of indicators suggesting Japan's economy is moving again, as exports to the U.S. and China improve. Machinery-order data are used to predict the strength in six to nine months of business investment, which accounts for 15% of Japan's gross domestic product.

The data come ahead of the planned release Monday of GDP data, which are expected to show an annualized drop of 2.4% for the October-December quarter, according to the median forecast of economists polled by Dow Jones Newswires.

But the government and the Bank of Japan predict the economy has started to expand, and economists said Thursday's figures show a rise in capital spending will be a key part of the overall economic recovery.

"Capital-expenditure momentum will continue to recover in 2011, because Japanese corporations had cut investment too much compared with depreciation and need to spend more to maintain facilities and stay internationally competitive," said Takuji Aida, a senior economist at UBS Securities Japan.

Capital spending likely will increase 8% in 2011, contributing one percentage point to GDP growth for the year, he said.

Among machinery orders, orders from manufacturers in December were down 1.9% from the month earlier, the first decline in three months-8212;and following a 10.6% November rise-8212;as makers of steel, nonferrous metal and information-communication equipment slashed their orders.

But orders from nonmanufacturers were up 3.9%, the first rise in three months—and following a 10.5% November tumble.

The Cabinet Office also said expectations for the current quarter are that orders from manufacturers will rise 16.1% from the previous quarter, while orders from nonmanufacturers will fall by 5.8%.

While the central bank is looking to bring a moderate level of inflation back into the economy, the figures aren't necessarily good news. They largely represented higher costs of imported raw materials, which will further squeeze profit margins for Japanese companies and could increase deflationary pressures in areas such as wages.