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JGBs firm, find machinery data inconclusive

TOKYO: Key March 10-year Japanese government bond futures ended slightly higher on Thursday as traders saw more significance in a weak outlook for machinery orders in January-March than a surprising surge in December. "The market was jolted by the extraordinary 16.1 percent rise in December machinery orders which was far above the highest forecasts," said a senior dealer for a Japanese trust bank.

The median forecast among private economists polled by Reuters predicted a decline of 0.4 percent. But dealers said JGBs quickly recovered from the initial shock after the Economic Planning Agency forecast that January- March core machinery orders would fall 1.6 percent after rising 9.9 percent in the last quarter of 1999. "There was later some bargain hunting by investors in long-term cash JGBs," the trust bank dealer said. Analysts said the data overall suggested that capital expenditure was likely to take off later this year, but added that a near-term scrapping of the Bank of Japan's zero interest rate policy was unlikely as consumption remained weak.

"The machinery orders show that the trend is likely to remain firm overall, as the weak January-March forecast follows a strong rise in October-December," said Kazuo Mizuno, general manager of Kokusai Securities, Economic Research Department.

Mizuno said the data showed orders picking up among firms specialising in the information technology sector. "It shows that capital expenditure among information techonology firms will rise, but unless that is accompanied by a rise in private consumption it is unlikely that the BOJ will end its zero interest rate policy," Mizuno said.

March 10-year JGB futures: ended at 131.92 up 0.17 from the Tokyo close of 131.75 on Wednesday. It fell as low as 131.57 after the machinery orders data was released.

The yield on the key 220th 10-year JGB stood at 1.860 percent 0 down from 1.875 percent late on Wednesday. Dealers said the machinery order data overall was not strong enough to alter their view that 10-year JGB yields will have a hard time rising above 1.9 percent before the end of March. "I think it may be premature to say that capital expenditure is headed for a recovery based solely on machinery orders data" which tends to fluctuate widely from month to month, said a dealer for a domestic brokerage house.

Market players will be paying close attention to data such as firms' capital spending plans in the forthcoming BOJ "tankan" business sentiment survey, which will be released on April 3, to gain a more accurate picture of the trend, the dealer said.-Reuters