July 5, 2013 / 10:52 AM / in 4 years

Japan May machine orders, current account surplus seen rising year-on-year

TOKYO (Reuters) - Japan’s core machinery orders probably inched up in May in sign that companies were responding to the government’s stimulus policies by gradually raising investment in plants and equipment, a Reuters poll showed.

The Cabinet Office is due to release the data on Thursday, hours before the Bank of Japan concludes a monthly policy review that is expected to give a rosier view of an economy that emerged from a shallow recession during the first quarter of this year.

The central bank is expected to hold off with any further policy steps after it announced its massive stimulus on April 4.

Before that, May current account data due out on Monday is expected to show a year-on-year rise in the surplus underpinned by a pickup in exports and hefty gains from overseas investments bolstered by a weaker yen.

The consensus forecast from a Reuters poll of 21 economists put Japan’s current account surplus at 608.5 billion yen ($6 billion) in May, up 77.9 percent year-on-year, though below April’s surplus of 750 billion yen.

Persistent trade deficits, due partly to the higher cost of fuel imports, have weighed on Japan’s current account balance.

Investors have scoured data for evidence that Prime Minister Shinzo Abe’s recipe of aggressive monetary stimulus, budget spending and pro-growth policies is working.

Improved economic performance will help Abe’s ruling bloc, which swept to power in the lower house of parliament last December, sustain public support ahead of an election for the upper house set for July 21.

Core machinery orders, according to a consensus forecast from 26 economists, are likely to show a 1.3 percent month-on-month rise for May, following a fall of 8.8 percent in April and a 14.2 percent jump in March.

Analysts say it will take some time for capital spending to accelerate as firms remain cautious about the economic outlook.

The Bank of Japan’s quarterly tankan corporate survey showed last week that big firms planned to boost capital expenditure by 5.5 percent in the current business year to March 2014.

“To see a clear pick-up trend in capital spending, however, you need to wait until after October-December when exports are expected to improve markedly due to effects of a weak yen and acceleration of the U.S. economy,” economists at Nomura Securities said in their forecast.

Bank lending data for June, also out on Monday, could give further clues on whether the central bank’s ultra-loose monetary policy is prompting companies to borrow and spend more.

Forecasts for lending were unavailable, but in May lending rose 1.8 percent from a year earlier, marking the biggest annual gain in nearly four years, largely due to property and M&A related investment.

Analysts, however, point out that many companies as well as households have substantial savings, so would not necessarily borrow from banks to fund increased expenditure.

($1 = 100.0250 Japanese yen)

Editing by Simon Cameron-Moore

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