Data to Show Signs of Life in Japan’s Economy?

Shibuya district, Tokyo
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Shibuya district, Tokyo

A slew of economic data from Japan is likely to be in focus this week as markets try to assess whether or not the dose of medicine to kick start the world's third biggest economy is starting to work.

Japan releases April household spending and consumer price data on Thursday. April industrial output data are due for release towards the end of the week, while retail sales data are out on Wednesday.

Japan's policy makers are making a concerted effort to revive an economy which has slipped in and out of recession in recent years and been hampered by years of deflation. Last month, the Bank of Japan (BOJ) unveiled an aggressive monetary stimulus program to reflate the economy. The government also unveiled a spending package worth just over $100 billion earlier this year.

"Japanese data on manufacturing conditions and household spending are likely to show further signs of improvement, but it's likely to be too early to expect CPI [consumer price inflation]data to show fading deflationary pressures," Shane Oliver, chief economist at AMP Capital, said in a research note.

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Economists polled by Reuters forecast Japan's consumer price index fell 0.4 percent in April from a year earlier, compared with a 0.5 percent decline in March.

Japan household spending is forecast to rise 3.1 percent in April from a year earlier versus a 5.2 percent increase in March.

On Monday, minutes from the BOJ's last meeting showed that some policymakers believed that it would be difficult to meet the central bank's 2 percent inflation target.

In Australia, Thursday's quarterly capital expenditure numbers for the March quarter could be an important indicator for whether the Reserve Bank of Australia (RBA) delivers an interest rate cut in June, analysts say.

The RBA cut its key lending rate unexpectedly by 25 basis points earlier this month to help support the economy as mining investment, a key boost to growth in recent years, slows.

"While business investment is likely to have seen modest growth in the March quarter, investment intentions for the year ahead are likely to confirm that mining investment has peaked and that non-mining investment is likely to remain weak," said Oliver.

Other highlights on the Asia economic calendar this week include a Bank of Thailand meeting on Wednesday and India's gross domestic product data for the first quarter of the year. Thailand's central bank is expected to cut rates by 25 basis points against a backdrop of weakening economic growth.

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Data on Monday showed China's industrial profits rose 11.4 percent in the first four months of the year from the same period last year. There are no other major economic releases from China scheduled for release.

Asian markets could also track U.S. economic data closely amid a degree of nervousness globally that the U.S. Federal Reserve could start unwinding its massive monetary stimulus program later this year.

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"Jobless claims have been signaling that the jobs market is robust but other data showing the manufacturing sector is not so great means the market is trading around these numbers," said Richard Yetsenga, head of global markets research at ANZ in Sydney.

"With some of the manufacturing numbers soft I think we will go through a reassessment of QE [quantitative easing] tapering in the third quarter," he told CNBC Asia's "Squawk Box."

The Institute for Supply Management index of manufacturing activity for instance, slipped to 50.7 in April from 51.3 a month earlier.

- By CNBC.Com's Dhara Ranasinghe; follow her on Twitter @DharaCNBC