Japan’s March factory output seen slowing slightly, BOJ to keep policy unchanged

TOKYO (Reuters) – Japan’s factory output was expected to have slowed a little in March versus February, a Reuters’ poll showed on Friday, but analysts see the expected dip as temporary with production returning to more vigorous growth in coming months.

The poll also showed the Bank of Japan is expected to keep monetary policy unchanged at its meeting next week, with consumer inflation still far from the bank’s 2 percent target.

Industrial production is seen rising 0.5 percent in March month-on-month. Output grew a revised 2.0 percent in February.

“Although the recent ongoing deterioration in business sentiment, especially in manufacturing, raises some concern, overseas demand remains brisk,” Yuichiro Nagai, economist at Barclays (LON:) Securities Japan said in the poll.

“We expect production to show positive growth in the second quarter.”

Analysts noted the Lunar New Year holidays slowed Japan’s export growth, which also affected first quarter industrial production. The trade ministry issues its factory output data at 8:50 a.m. on Friday April 27, Japan time (2350 GMT Thursday).

The poll of 17 economists expected core consumer prices in Tokyo, published a month before the nationwide data, to rise 0.8 percent in April from the year ago, the same rate as seen in March.

Core CPI includes oil products but excludes volatile fresh food prices.

“Energy prices are expected to have softened but prices in other items continued to improve, which supported Tokyo’s core CPI overall,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

Economists predict the Bank of Japan will keep its short-term interest rate at minus 0.1 percent and the 10-year government bond yield target at around zero percent at its meeting between April 26-27.

Separately, sources told Reuters that the central bank is likely to maintain its view that inflation will reach its 2 percent target next fiscal year when it issues new forecasts next week.

It is expected to project inflation staying near that level the following year.

Retail sales, which will be announced at the same time as the factory output data, were expected to rise 1.7 percent in March – a fifth straight gaining month.

Analysts forecast the unemployment rate will be steady at 2.5 percent in March. And the jobs-to-applicants ratio is expected to rise to 1.59 in March from 1.58 in February. It was 1.59 in January and December, its highest since January 1974.

The internal affairs ministry will announce the Tokyo core CPI and jobs data at 8:30 a.m. Japan time on April 27 (2350 GMT on April 26).

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