Japanese manufacturing sentiment slips, consumer prices edge up

It's the season for giving, but the latest data from Japan are not giving too many new clues about when the next BoJ rate hike will come.

Manufacturing sentiment appears to be deteriorating gradually in Japan, according to this Reuters report.

The business survey index (BSI) on sentiment at large manufacturers in the October-December quarter was plus 7.1, compared with plus 12.7 in July-September...

The business sentiment survey also showed firms see capital spending rising 8.6 percent in the financial year ending next March 31 and recurring profits growing 3.6 percent.

But companies are more cautious about the outlook for the coming months amid concerns that a U.S. economic slowdown could hurt Japan's economy.

The BSI for big manufacturers was seen at plus 5.8 for January-March and plus 3.3 for April-June...

[Bank of Japan Governor Toshihiko] Fukui said on Monday that the BOJ would carefully examine new information on economic and price developments in determining the timing of the next rate hike.

Another Reuters report shows that inflation remains low, although the consumer sector may be improving.

Japan's core consumer price index (CPI), excluding volatile fresh food prices, rose 0.2 percent in November from a year earlier, government data showed on Tuesday, matching economists' consensus forecast.

Core CPI in the Tokyo area rose 0.2 percent in December from a year earlier, lower than the consensus forecast of a 0.3 percent rise.

But in an encouraging sign for the BOJ, overall household spending in Japan fell 0.7 percent in November from a year earlier, a smaller pace of decline than a median market forecast of a 1.3 percent drop...

Separate data showed that Japan's seasonally adjusted unemployment rate fell to 4.0 percent in November from 4.1 percent in October, while the jobs-to-applicants ratio for November was 1.06, meaning 106 jobs were available per 100 applicants.

The inflation figure, while positive, did not impress some economists.

"It's hard to say anything positive about price conditions. The rate of price rises will likely stay at a super-low levels," said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute.

Bloomberg provides more views from economists.

Core prices accelerated last month because the effect of mobile phone fee reductions made in November 2005 disappeared, said Azusa Kato, an economist at BNP Paribas Securities Japan Ltd. in Tokyo. The fee cuts dragged the level of the consumer price index lower on a year-on-year basis.

She said inflation may remain moderate in the first half of 2007 because the effect of falling oil prices will linger.

"Core consumer prices will continue to hover around 0.2 percent in the first half of 2007, partly due to oil, though we don't expect them to slip into negative territory," Kato said.

Some economists are still betting on a rate hike early next year.

"Consumer price numbers are clearly on a rising trend," said Yasuhiro Onakado, chief economist at Daiwa SB Investment Ltd. in Tokyo. "There's a high chance the BOJ will raise rates in January or February if we continue to see less weak data."...

"In the medium to long term we expect price gains to pick up because the economy's output gap is becoming positive," said Mamoru Yamazaki, chief economist at RBS Securities Japan Ltd., who predicts a January increase...