Japan capex fall slows, 2nd qtr GDP seen revised up-UPDATE 1

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Saturday September 04, 2010 02:00:01 AM GMT

* Q2 capex falls 1.7 pct yr/yr vs forecast 6.5 pct drop

* Q2 GDP seen revised up from preliminary reading -analysts

* Strong yen, slowing exports to U.S. and China pose risks (Adds analyst quotes, details)

By Kaori Kaneko

TOKYO, Sept 3 (Reuters) - Japanese companies cut capital spending in April-June by a less-than-expected 1.7 percent from the same period last year, pointing to an upward revision of an anaemic preliminary reading for second-quarter GDP growth.

But the strong yen and slowing exports to major destinations such as the United States and China may hurt business sentiment and corporate willingness to spend, boding ill for the economic outlook, analysts say.

"The better showing in capital spending reflected improving corporate profits, a trend that is likely to continue for now," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.

"But given that some signs of a slowdown in the economy are emerging, there is a risk that the appetite for corporate capital spending may be curbed. Corporate capital spending is expected to remain in a moderate uptrend, but it will not be strong enough to lead the economy."

The 1.7 percent fall in capital spending for April-June was slower than a median market forecast of a 6.5 percent decrease and an 11.5 percent drop in the first quarter, Ministry of Finance data showed on Friday.

The figures mean second-quarter gross domestic product (GDP) growth will likely be revised up from a preliminary estimate of a meagre 0.1 percent, analysts say.

The BOJ is likely to hold off on easing policy at its rate review next week, after loosening policy at an emergency meeting on Monday in the wake of the yen's surge to a 15-year high against the dollar.

But the central bank is not off the hook, with the outlook for the export-reliant economy uncertain.

"The economy could slow in the fourth quarter after government subsidies for cars expire. At that point, people will start worrying about recession, and the chance of monetary policy easing becomes more likely," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

The quarterly capital spending figures will be used to calculate revised second-quarter GDP figures, due on Sept. 10. (Editing by Edmund Klamann)

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