Machinery orders at Japanese firms rose more than expected in November from October, signaling firm capital spending and reinforcing market expectations that the Bank of Japan could raise rates this week.
But the central bank, in weighing an interest rate hike at a two-day policy meeting ending on Thursday, is focused less on the machinery data than on whether personal consumption and prices will pick up from their recent softness, analysts said.
Core private-sector machinery orders, a key gauge of corporate capital spending, rose 3.8% in November from the previous month, data showed on Monday.
That was higher than economists' consensus forecast for a rise of 3.4% and followed a 2.8% increase in October.
The strong reading underscores the dominant market view that robust corporate capital spending will underpin the economy even as personal consumption remains slack.
Japanese government bond futures hit a 2-1/2-month low after the data as speculation grew that the BOJ could raise the overnight call rate to 0.5% from the current 0.25%.
Analysts are divided over whether the central bank will hike rates at this week's meeting or wait a while longer to further examine economic data. "I don't think today's machinery orders numbers will be a decisive factor in the BOJ's rate decision this week," said Takumi Tsunoda, an economist at Shinkin Central Bank Research.
"We think the BOJ will raise rates in February, when (October-December) GDP data will probably confirm that consumption has rebounded," he said.
The yen strengthened to near 120.22 against the U.S. dollar from 120.32 just before the data, while benchmark March Japan government bond futures fell 0.18 point to 133.42.
Economists also said they would wait for more data to determine the trend of capital spending in the coming months. "To determine the strength of the future capital spending, I would like to
see the actual figure for October-December and the government's forecast for January-March as well as the BOJ's next tankan survey," said Naoki Iizuka, senior economist at Mizuho Securities.
"If the BOJ wants to ease worries about possible downside risks to the economy, such as the U.S. economic outlook and the IT sector, they should watch more data, including industrial output for December," he said.
The BOJ has kept monetary policy on hold since raising its overnight call rate target from zero in July, which was the first rate rise in six years.