UPDATE 2-Japan capex points to better Q3 GDP, outlook murky

* MOF corporate survey shows Q3 capex up 5 pct yr/yr

* Analysts expect slight upward revision to Q3 GDP after data

* Sales, recurring profit growth slow as stronger yen bites

* GDP likely to contract in Q4, resume growth next year
(Adds analyst forecasts, details)

By Tetsushi Kajimoto

TOKYO, Dec 2 (BestGrowthStock) – Japanese firms raised capital
spending in July-September for the first time in more than three
years but profit and sales growth slowed, as a dip in demand both
at home and abroad, spurred by a strong yen, clouds the economic
outlook.

The data, while pointing to an upward tweak when
third-quarter GDP figures are revised next week, will keep the
Bank of Japan under pressure to maintain its very loose monetary
policy, with slowing exports and the waning impact of government
stimulus likely to trigger a fall in GDP in the current quarter.

Many economists expect Japan’s economy to begin growing again
next year, as Asia’s emerging economies power ahead and the yen
stabilises after nearly hitting a record high last month, but the
euro zone’s debt woes have added to uncertainties on the horizon
and kept growth forecasts modest.

“The rise in capital spending is expected to mean the capex
component in revised GDP being raised,” said Takeshi Minami,
chief economist at Norinchukin Research Institute in Tokyo.

“But looking at details in the data such as recurring profit
levels, you can see that the stronger yen and a slowdown in
overseas economies are affecting the economy.”

The government’s initial estimate showed GDP in the third
quarter grew 0.9 percent, or an annualised 3.9 percent.

Analysts expect this to be revised to 1.0-1.1 percent, or
4.1-4.4 percent annualised, while some note that revised figures
may end up far from their forecasts due to revisions of the
previous fiscal year’s GDP data.

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Graphic on capex and GDP: http://link.reuters.com/pyw97q

More stories on Japan’s economy [ID:nECONJP]

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SLOW IMPROVEMENT

Japan’s capital spending has been slowly improving since last
year as the economy recovered from the global financial crisis,
which hammered corporate profits and investment.

The 5 percent rise in capital spending in the third quarter,
led by auto makers and electronic device makers, followed a 1.7
percent drop the previous quarter, Ministry of Finance data
showed on Thursday. [JPBUSX=ECI].

The data is used to calculate revisions to gross domestic
product figures for the third quarter, which are due for release
at 8:50 a.m. on Dec. 9 (2350 GMT on Dec. 8).

It was the first annual increase in capital spending since
the first three months of 2007, while manufacturers raised their
investment for the first time since April-June 2008.

Compared with April-June, capital spending excluding software
was up 1.9 percent on a seasonally adjusted basis, posting a
second straight quarter of rises, MOF data showed.

Although the trend has turned the corner, the volume of
capital spending is still less than 70 percent of what it was
three years ago, before the collapse of U.S. investment bank
Lehman Brothers in 2008 triggered the global financial crisis.

“Overall, the data showed continued improvement in the
corporate sector … but we must carefully watch the trend
ahead,” a ministry official said, noting slower growth in sales.

Firms’ recurring profits rose 54.1 percent in the third
quarter from a year earlier, slowing from annual growth of 83.4
percent in the previous quarter.

Sales grew 6.5 percent, easing from the prior quarter’s 20.3
percent pace. The quarterly data covered 23,009 companies
capitalised at 10 million yen ($120,000) or more.

Economists polled by Reuters expect the economy to shrink 0.1
percent in October-December as exports slow and auto output
slumps after the expiry of government incentives for purchases of
low-emission cars. [ID:nSLA9ME6I3]

The Bank of Japan, worried by uncertainties in the economic
outlook, eased monetary policy in October by pledging to keep
rates effectively at zero until the end of deflation is in sight
and to spend 5 trillion yen ($60 billion) on assets ranging from
government bonds to corporate debt.

The BOJ has said that expanding the fund is a clear option if
the looming slowdown proves worse than expected. But the yen’s
retreat from 15-year highs scaled early last month makes any
radical near-term action unlikely. [ID:nL3E6MI0E3]
($1=84.17 Yen)
(Editing by Edmund Klamann)

UPDATE 2-Japan capex points to better Q3 GDP, outlook murky