Japan's economy seen growing moderately but Trump poses currency, trade risks - Reuters poll

By Kaori Kaneko

TOKYO (Reuters) - Japan's economy is expected to grow at a slightly faster pace in the fiscal year starting in April than projected last month, but there is heightened uncertainty over the outlook as U.S. President-elect Donald Trump prepares to take office, a Reuters poll showed.

While a weaker yen is supporting Japan's export-driven economy, analysts are cautious given risks that Trump's policies might trigger a reversal in the yen-dollar rate.

The world's third-largest economy is expected to expand 1.1 percent in the next fiscal year, led by public spending, a softer yen's boost to exports and improving global growth, according to a poll of 38 analysts taken Jan. 5-16.

That's up slightly from last month's fiscal year projection of 1.0 percent growth, and down slightly from the 1.2 percent forecast for this fiscal year through March.

"We expect the economy will perform well as the global economy is improving, which helps Japan's exports, and the yen weakened more than previously expected," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

Shinke said the Japanese economy would also benefit from global inventories being run down at a faster rate, fostering a pick up in worldwide factory production.

"The risks for Japan lie in whether the new U.S. administration leans towards protectionism and if it takes a policy of weakening the dollar," he said.

Analysts also said higher inflation in the United States could hurt emerging economies, and Japan, as funds seek out higher yielding U.S.-dollar assets.

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, estimates Japan's economy will get 0.3-0.4 percentage point boost from the U.S. economy under the new administration and much of that will likely appear next fiscal year.

The yen has strengthened again after weakening to 118.66 to the dollar on bets of tax cuts, higher spending and a faster pace of U.S. rate increases under Trump.

Japan's Nikkei 225 average has also declined since hitting a 13-month high above 19,600 earlier this month. The yen stood around 113.00 yen and the Nikkei was trading around 18,770 on Wednesday.

"Considering interest rate differentials between Japan and the U.S., the yen's depreciation could progress, but if the protectionism in the U.S. strengthens, the yen could rise," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

Among 27 analysts who responded to an extra question on the yen, about 85 percent said the government would not tolerate a yen-dollar rate beyond 130 yen. And most said a weaker yen beyond that level would hurt the Japanese economy.

A separate Reuters poll showed analysts expect the yen will be around 120 yen per dollar at the end of this year. [EUR/POLL]

BOJ OUTLOOK

The Reuters poll projected the Bank of Japan will keep its -0.1 percent interest rate imposed on some excess bank reserves at least until the first quarter of 2018.

About 40 percent of the analysts who responded to a question on the BOJ's next policy action expect the central bank to start unwinding its super-loose monetary policy, the poll showed. That is up from 32 percent in the last survey.

The core consumer price index, which includes oil products but excludes fresh food prices, is forecast to rise 0.8 percent for the fiscal year starting April and 1.0 percent for fiscal 2018, the poll showed.

The BOJ expects consumer prices to rise by 1.5 percent in fiscal 2017 and by 1.7 percent in fiscal 2018, according to forecasts it issued in November.

(Reporting by Kaori Kaneko, polling by Shaloo Shrivastava and Khushboo Mittal; Editing by Shri Navaratnam)