June 9, 2017 / 6:25 AM / a month ago

Japan April machinery orders seen falling, BOJ to keep policy steady next week

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People work next to heavy machineries at a construction site in Tokyo, Japan, March 13, 2016.Yuya Shino

TOKYO (Reuters) - Japan's core machinery orders likely fell for the first time in three months in April, a Reuters poll showed, but analysts believe companies' capital spending plans remain solid as the global economy recovers.

The poll also showed that the Bank of Japan is expected to keep its monetary policy unchanged next week as the economy is growing modestly despite weak inflation and consumer spending.

"Core machinery orders will be viewed as moving sideways. But we expect a trend of pickup will become clearer supported by upbeat corporate earnings," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"There is a high chance that core machinery orders in April-June will be better than companies' forecast of a 5.9 percent fall for the period."

Core machinery orders likely fell 1.3 percent in April from the previous month after a 1.4 percent rise in March, the Reuters poll of 15 economists showed.

From a year earlier, core orders, which exclude those for ships and electrical equipment, rose 6.3 percent in April.

While the data series is highly volatile, it is regarded as a leading indicator of capital spending in the coming six to nine months.

"Exports and factory output continue to be favorable due to the global economic recovery and a weaker yen, but uncertainty over the Trump administration's trade policy makes corporations cautious about domestic investment," said an analyst at SMBC Nikko Securities.

The Cabinet Office will announce machinery orders at 8:50 a.m. on Monday (Sunday 2350 GMT).

As for the BOJ, analysts expect it will keep its short-term policy interest rate at minus 0.1 percent and the 10-year government bond yield target at around zero percent at a two-day policy meeting on June 15-16.

"The focus next week will be BOJ Governor (Haruhiko) Kuroda's comment on what the central bank's stance on how to communicate with markets about an exit strategy," said Tsuyoshi Ueno, senior economist at NLI Research Institute.

The central bank is set to upgrade its economic assessment as early as next week to signal its growing conviction the recovery is gathering momentum, people familiar with its thinking told Reuters, reinforcing expectations its next move would be to tighten monetary policy.

The poll showed the BOJ's corporate goods price index (CGPI), which measures the prices companies charge each other for goods and services, grew 2.2 percent in May from a year ago, up for a fifth straight month partly boosted by oil price increases.

Reporting by Kaori Kaneko; Editing by Richard Borsuk and Kim Coghill

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