Japan Q2 capex lacks momentum, suggests little change to revised GDP

TOKYO: Japanese business expenditure fell in April-June from the previous quarter, suggesting only minor revisions will be made to recent gross domestic product figures and a sign that sluggish capital spending is hampering economic growth.

The capital spending data, which is used to calculate revised gross domestic product (GDP) due on Sept 8, underscores concerns about stagnation in the world's third largest economy.

A preliminary estimate showed Japan's economy stalled in the April-June quarter, registering a meagre 0.2% annualised expansion due to declines in exports and capital spending.

A recent batch of weak indicators including exports, factory output and household spending cemented market views that any rebound in the current quarter will be modest.

"Looking at quarter-on-quarter declines in capital spending, revised GDP would show little change from the initial estimate," said Yuichiro Nagai, economist at Barclays Securities. "Capital spending has been weak so far and risks are tilting to the downside ahead, given the yen's gains from the start of the year." 

Capital spending in April-June rose 3.1% year-on-year, slowing from a 4.2% annual gain in the previous quarter, finance ministry data showed on Thursday.

However, capital expenditure fell 0.5% from the previous quarter on a seasonally-adjusted basis after excluding software spending, slowing from a slight decline at the start of this year.

Manufacturers' investment grew 2.0% quarter-on-quarter in April-June, while spending by service sector firms fell 1.9%.

"The key is whether manufacturers can sustain profits from now on but we cannot be optimistic due to a rising yen," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. "Service sector firms' cautious stance on capital spending is also a source of concern for the outlook." 

Compared to the same period a year earlier, corporate profits fell 10% percent in April-June, as the yen's gains and reduced smartphone output dented profits at electronics firms.

Disruptions caused by the Kumamoto earthquakes hit automakers.

Still, corporate profits were at the second-highest level on record in April-June versus the equivalent quarter a year ago, a ministry official said.

The dollar was trading at around 103 yen on Thursday. It has lost about 20% against the yen this year before gaining some ground since Friday. 

A strong yen hurts Japan's exports, makes imports cheaper and undermines efforts to escape two decades of deflation and stagnation. - Reuters