Japan capex unexpectedly falls; Q2 GDP seen revised down - Reuters

* Q2 capex down 7.8 pct yr/yr vs f'cast +1.2 pct

* Sales, recurring profits also drop in April-June

* Analysts expect slight downward revision to Q2 GDP (Adds analyst quote, detail)

By Tetsushi Kajimoto and Leika Kihara

TOKYO, Sept 2 (Reuters) - Japanese firms' sales, profits and capital spending for the second quarter fell from a year earlier, as the strong yen and slowing global demand weigh on the economy's recovery from the March earthquake and tsunami.

Analysts expect the surprise 7.8 percent drop in capital spending to lead to a downward revision to the country's April-June gross domestic product when the data comes out next week.

While Japan's economy is expected to rebound in the third quarter as supply constraints from the quake ease, the survey underscores the fragile state of corporate activity.

"Corporate activity was expected to return to levels before the earthquake in July-September as disaster relief proceeds," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"But the pace of recovery may slow given recent developments in output and exports, as well as the slowdown in global growth and yen rises."

The annual decline in second-quarter capital spending followed a revised 3.0 percent gain in January-March and was the first decrease in a year, data from the finance ministry showed on Friday, surprising analysts who expected a 1.2 percent rise.

Sales fell 11.6 percent from a year earlier, while recurring profits were down 14.6 percent, as sales of cars and flat-screen television sets slumped due to the effect of supply constraints and cooling consumer sentiment after the quake.

The survey's capital spending figures are used to calculate revised GDP figures for the second quarter, due on Sept. 9.

Many economists now expect Japan's economy to have shrunk anywhere between 0.4 to 0.6 percent in April-June from the previous quarter, slightly more than the preliminary 0.3 percent fall which was the third straight quarter of contraction.

"The capex fall itself is somewhat negative. But the GDP revision won't be big so it won't lead to a major change to our view on the economy," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, who expects GDP growth to be revised down to a 0.4 percent contraction.

The global slowdown and stubborn yen rises have cast doubt on the Bank of Japan's forecast that the economy will resume a moderate recovery in the autumn when companies restore supply chains hurt by the quake.

Still, the central bank looks set to hold off on easing monetary policy next week with the yen's retreat from its record high and a resilient stock market allowing it to save for later its limited options for supporting the economy.

(Editing by Joseph Radford)

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Japan Consumer Prices Unexpectedly Rose 0.1% - Bloomberg

Enlarge image A customer looks at a display at a jewelry shop in Tokyo. Japan’s core consumer prices rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today.

A customer looks at a display at a jewelry shop in Tokyo. Japan’s core consumer prices rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today. Photographer: Haruyoshi Yamaguchi/Bloomberg

Aug. 25 (Bloomberg) -- Naka Matsuzawa, chief strategist at Nomura Securities Co. in Tokyo, talks about Japanese politics, the nation's economy and financial markets. Matsuzawa speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Japan’s core consumer prices unexpectedly rose in July, gains economists say won’t end the nation’s fight against deflation.

Prices excluding fresh food rose 0.1 percent in July from a year earlier, the statistics bureau said in Tokyo today. The median estimate of 27 economists surveyed by Bloomberg News was for a 0.1 percent drop.

Persistent deflation exacerbates Japan’s problems in coping with a yen close to a record high against the dollar at a time when the economy is just recovering from a March earthquake. Prime Minister Naoto Kan’s successor will be challenged with working with the Bank of Japan to fight price declines that have kept the economy stuck near its 1990 size.

“The sustainability of Japan’s recovery is now in question with the strong yen and a weakening global economy,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “I don’t see any chance deflation will end in the foreseeable future. This will remain a big challenge for the government and the Bank of Japan. (8301)”

Japan’s consumer prices were revised on Aug. 12 as the bureau reshuffled items in the price basket, part of a change that takes places every five years. The revamping of the index lowered prices by about 0.6 percentage point on average.

Central bank Governor Masaaki Shirakawa said Aug. 4 the nation will take a while to achieve price stability as he anticipated new figures would show price declines have been worse than initially anticipated. The central bank kept its estimate for core consumer price inflation at 0.7 percent for the year ending March 31 in July.

Finance Minister Yoshihiko Noda this week unveiled measures to combat the yen which reached a record high of 75.95 per dollar last week. Japan set up a $100 billion facility to promote companies purchasing overseas businesses and secure energy resources.

The strong yen erodes overseas profits when repatriated, weakening the competitiveness of exporters, one of the nation’s main engines of growth.

“I have kept monitoring markets with a sense of tension since last weekend, but the yen continues to have one-sided moves,” Noda, who is also a contender to replace Kan, told reporters this week. “I thought we had to swiftly address this by employing measures.”

Candidates of the ruling Democratic Party of Japan are scheduled to compete in a party election on Aug. 29 to be the sixth premier in five years. The race comes less than a week after Moody’s Investors Service cut Japan’s credit rating, citing political instability.

Economists including Dai-Ichi’s Shinke say prices may rise in coming months because of rising commodity costs. Japan will raise prices of imported wheat to flour millers by an average 2 percent in October, the government said this week. Wheat futures in Chicago have advanced 11 percent in the past year as of Aug. 24, bolstering a rally in global food prices to an all- time high in February.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

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

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