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Japan's March core inflation seen accelerating, factory output to cool

By Kaori Kaneko
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A woman looks at items outside an outlet store at a shopping district in Tokyo

A woman looks at items outside an outlet store at a shopping district in Tokyo, Japan, February 25, 2016. REUTERS/Yuya Shino

By Kaori Kaneko

TOKYO (Reuters) - Japan's core consumer prices likely rose at their fastest pace in about two years in March, boosted by energy costs while an export-led surge in factory output seen in the previous month is expected to have cooled, a Reuters poll showed.

Economic data next week will give an indication of how much external conditions have supported Japan's economic growth in the first three months of the year. Economic growth in the fourth quarter of last year expanded helped by capital spending. Official gross domestic product data for the first quarter will be released in May.

The Bank of Japan also holds its monetary policy meeting next week at which analysts expect policy settings will remain unchanged, though source say the central bank could offer a more upbeat economic outlook thanks to improving exports.

"I expect the economy for the first quarter retained its solid tone," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"Factory output was supported by upbeat exports. The output likely stayed in a rising trend if we average out in the fourth quarter last year and January-March."

Industrial production is expected to have slipped 0.8 percent in March from the previous month, the poll of 19 analysts showed, after February's revised 3.2 percent surge.

Analysts say the focus will also be on manufacturers' production forecasts for April and May.

A preliminary Purchasing Managers Index (PMI) released by Markit/Nikkei on Friday showed Japanese manufacturing activity expanding at a stronger pace in April than the previous month as export orders surged.

The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, is expected to rise 0.3 percent in March from a year ago, the poll showed. This would match the same rate of increase in April 2015.

Core CPI in Tokyo, available a month before the nationwide data, is expected to fall 0.2 percent in April, a slower pace of decline than a 0.4 percent decline in March.

Analysts say energy prices largely contributed to core CPI increase, while prices for other items did not perform well.

The poll found retail sales likely rose an annual 1.5 percent in March and household spending slipped 0.3 percent for the month, down for 13 straight month, but much lower pace than a 3.8 percent drop in February.

The jobless rate likely stood at 2.9 percent in March compared with 2.8 percent in February, which was the lowest in about two decades. And the jobs-to-applicants ratio was steady at 1.43, the highest level since July 1991, according to the poll.

The internal affairs ministry will release CPI, jobs data and household spending at 2330 GMT on Thursday (8:30 a.m. on April 28 Japan time), and the trade ministry will announce factory output and retail sales at 2350 GMT.

Economists expect the BOJ to maintain its short-term interest rate of minus 0.1 percent, applied on a small potion of commercial banks' excess reserves, and to pledge to guide the 10-year government bond yield at around zero percent.

The BOJ is expected to offer a more upbeat view of the economy at this month's rate review than it did last month, people familiar with the matter told Reuters, as robust exports and factory output support recovery in the world's third-largest economy.

(Reporting by Kaori Kaneko; Editing by Sam Holmes)