Japanese interest rates may rise with machinery orders

Japan readies itself for a possible rate hike later this week with the following news provided by Bloomberg:

Japan's machinery orders climbed more than economists forecast, fueling speculation the central bank will raise interest rates this week.

Non-government orders, excluding shipping and utilities, climbed 3.8 percent in November to 1.06 trillion yen ($8.8 billion) from October, the first back-to-back gains since 2005, the Cabinet Office said today in Tokyo. The median estimate of 28 economists surveyed by Bloomberg News was for 3.5 percent.

Policy makers will decide on Jan. 18 whether to raise the key overnight lending rate from 0.25 percent to prevent excessive business investment and asset-price bubbles. Investors see a 76 percent chance the central bank will increase borrowing costs this week, up from 66 percent on Jan. 12, according to Credit Suisse Group calculations.

But despite the Bank of England's rate hike last week, the inflation picture in the UK painted by the latest data looks mixed. From FT:

Manufacturers’ raw material costs are rising at the slowest pace for more than 2½ years, suggesting inflationary pressure may be easing at the start of the supply chain.

However, prices at the factory gate climbed by slightly more than expected last month, as producers enjoyed more pricing power, a report released on Monday showed.

The Office for National Statistics said its seasonally adjusted index of input prices rose by 0.1 per cent between November and December...

Meanwhile, output prices climbed by 0.2 per cent month-on-month, for an annual gain of 2.2 per cent.

And from Bloomberg:

An index of U.K. house prices fell to a four-month low in December as two interest-rate increases by the Bank of England last year began to subdue the property market, the Royal Institution of Chartered Surveyors said.

The number of real-estate agents and land surveyors reporting higher home values outnumbered those showing declines by 37 percentage points, down from a revised 46.9 percent in November, the organization said today in London.

Perhaps the European Central Bank was more correct in cautiously holding rates last week, with eurozone industrial production remaining somewhat weak. Eurostat reports:

Seasonally adjusted industrial production increased by 0.2% in the euro area (EA12) in November 2006 compared to October 2006. Production fell by 0.1% in October and by 1.0% in September. In the EU25 output rose by 0.3% in November, after remaining unchanged in October and decreasing by 0.5% in September.

In November 2006 compared to November 2005, industrial production grew by 2.5% in the euro area and by 2.8% in the EU25.