A woman looks at a display window of a luxury department store as people walk past at Tokyo’s Ginza shopping district. Japan’s economy is expected to show a more severe contraction than originally estimated in revised second-quarter growth data due next week because of a big drop in capital spending, a Reuters poll found.

Reuters/Tokyo

Japan’s economy is expected to show a more severe contraction than originally estimated in revised second-quarter growth data due next week because of a big drop in capital spending, a Reuters poll found, indicating any rebound in the current quarter may limited.
A potential source of relief in next week’s major indicators could be core machinery orders, a leading indicator of impending capital investment, which was seen to have risen in July after showing the biggest month-on-month fall in over a year in June.   “Any likely rebound in the third-quarter will be supported by the non-manufacturing sector as external demand, especially that of China, is weak and thus it is hard to predict exports will recover strongly,” said Yuichiro Nagai, an economist at Barclays Capital Japan.
“But factory output lacks the momentum and there is a downside risk to the pace of recovery in the current quarter.”
Japan’s economy was expected to have shrunk an annualised 1.8% in April-June, downgrading from the initial estimate of a 1.6% contraction, the poll of 21 analysts found. This would translate into a quarter-on-quarter decline of 0.4%, unchanged from the initial reading.
Capital expenditure, a major component of GDP, is likely be revised down to a 0.8% decline for the quarter from a preliminary a 0.1% fall, the poll found. The Cabinet Office will release the revised GDP data at 8:50 am on Tuesday (2350 GMT Monday).
Core machinery orders, a highly volatile data series regarded as a reliable indicator of capital spending in the coming six to nine months, were seen rising 3.7% in July after a 7.9% tumble the previous month. From a year ago, core orders are forecast to have climbed 10.5% after an annual 16.6% gain in June, the poll showed.
“Corporate earnings are solid and some firms returning to production in Japan due to a weak yen will likely contribute to a recovery in capital spending,” said an analyst at Shinkin Central Bank in the survey. The Cabinet Office will release the machinery orders at 8:50 am on Thursday. Japan’s current account balance, which will be published on Tuesday, is expected to show a surplus of ¥1.715tn ($14.38bn) in July. It would be the 13th straight monthly surplus as an increase in the number of foreign tourists was helping to improve the services balance and the trade deficit is seen narrowing due to falls in imports. The corporate goods price index (CGPI), which measures the price companies charge each other for goods and services, probably fell an annual 3.3% in August, according to the poll, after it declined 3% in July.