Japan Capital Spending Rises Less-Than-Forecast 6.6% on Year

Japanese companies’ capital spending rose in the second quarter from a year earlier, boosted by the comparison with the period immediately after the nation’s record earthquake and tsunami.

Expenditure excluding software gained 6.6 percent, the Finance Ministry said today in Tokyo. The median estimate of six analysts surveyed by Bloomberg News was for an increase of 7.8 percent. A year earlier, spending declined 8.2 percent.

Today’s report may lead the government to revise down an estimate that the economy grew an annualized 1.4 percent in April-through-June, already weaker than the 5.5 percent gain in the first quarter, RBS Securities Japan Ltd. said. Consumer prices slid in July and industrial output unexpectedly fell, underscoring the risk Japan’s recovery will peter out as Europe’s crisis and strength in the yen curb exports.

“Today’s capital spending figures look weaker than the business spending number in the preliminary GDP report,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo. “Companies have slowed their business spending and will likely continue to do so in the coming months.”

The Nikkei 225 Stock Average fell 0.5 percent as of 10:15 a.m. in Tokyo. The yen gained 0.2 percent to 78.25 per dollar, up about 7 percent since mid-March.

The central bank may expand its asset-purchase program at its next meeting on Sept. 18-19, according to RBS Securities Japan Ltd. in Tokyo.

Sales Decline

Companies’ sales dropped 2.5 percent in the second quarter from the previous three months, today’s report showed. Spending fell 0.5 percent in the April-through-June period, declining for a second quarter.

“The most negative news from today’s report was sales which fell for the first time in four quarters,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The decline in sales reflected that production and exports have weakened on slowing global demand.”

The Japanese government downgraded its assessment of the nation’s economy last week, while the latest data from China has added to signs of weakness in the Asian and global economies. Chinese manufacturing unexpectedly shrank for the first time in nine months in August, according to a government-backed purchasing managers’ index.

“Japan’s economy may not fall into a recession, but it’s obvious that the slowdown in global demand is taking a toll,” Nishioka said. “Given today’s report, it will probably be unavoidable that the GDP figures will be revised down.”

In the U.S., Federal Reserve Chairman Ben S. Bernanke said Aug. 31 that joblessness is a “grave concern” and further bond purchases under so-called quantitative easing shouldn’t be ruled out. Banks including Barclays Securities Japan Ltd. and BNP Paribas SA (BNP) forecast Japan’s economy will contract this quarter. Sharp Corp. (6753), the nation’s largest maker of liquid-crystal displays, is cutting thousands of jobs and has widened an annual loss forecast.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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