ANALYSTS: Japan Q2 GDP Seen Above +2% on Spending, Capex

     TOKYO (MNI) - Japan's gross domestic product for the April-June quarter is

expected by economists to post solid growth of 0.7% on quarter, or an annualized

2.6%, as strong domestic demand offset a temporary slip in external demand.

     The median forecast for Q2 GDP is based on projections by 10 economists,

which ranged from +0.5% to +0.9% on quarter, or an annualized +2.2% to +3.6%.

     The Cabinet Office will release preliminary GDP data for the second quarter

of 2017 at 0850 JST on Monday, Aug.14 (2350 GMT on Sunday, Aug. 13).

     The expected above-potential expansion in Q2 would be the sixth consecutive

quarterly gain and the highest since +0.7% on quarter, or +3.0% annualized, in

Q4 of 2014.

     GDP rose 0.3% on quarter, or an annualized +1.0%, in January-March, led by

strong capital investment and private consumption.

     The Q2 GDP growth was led by consumption, business investment and public

investment, economists said.

     Wage hikes have been slow but household income has shown a modest increase

while some firms are coping with labor shortages by investing in equipment. The

stimulative effect of the fiscal 2016 supplementary budget emerged in Q2,

pushing up public works spending.

     The median forecast for private consumption, which accounts for about 60%

of GDP, is +0.5% on quarter in Q2 (ranging from +0.3% to +0.7%), up from +0.3%

in Q1.

     BNP Paribas chief economist Ryutaro Kono said in a report that private

consumption is expected to have posted the sixth straight quarterly rise

"against the backdrop of a falling risk of losing jobs in the very tight labor

market and a continued modest recovery in average wages."

     Consumption was also supported by stable fresh food prices in Q2 and

emerging demand for replacing automobiles and other durable goods that were

purchased with the help of government subsidies for fuel efficient cars and

electronics, he said.

     The core household spending index, which excludes housing, motor vehicles

and other volatile items -- close to private consumption patterns in GDP data --

rose 0.8% on month in June on a seasonally adjusted basis, the first

month-on-month gain in two months. Q2 core spending is estimated by economists

to be +1.1%.

     The Cabinet Office's Private Consumption Integrated Estimates index, which

is based on both supply- and demand-side data, is expected to post a second

straight quarterly increase. The April-May index average rose 0.5% on the

January-March quarter when it gained 0.3%.

     The BOJ's supply-side Consumption Activity Index rose a real 1.0% on a

seasonally adjusted basis in April-June following a 0.8% rise in the first

quarter.

     Economists expect capital investment to have risen 1.4% on quarter for the

third straight q/q rise after +0.6% in Q1, with their forecasts ranging from

+0.6% to +2.0%.

     Industrial production rose 1.9% on quarter in April-June, marking the fifth

straight quarter-on-quarter rise after +0.2% in January-March.

     Shipments of capital goods excluding transport equipment -- a key indicator

of the business investment component of GDP data -- fell 1.4% on month in June

but they rose 4.8% on quarter in April-June, the first rise in two quarters.

     On the downside, the contribution of net exports of goods and services --

exports minus imports -- is forecast by economists to have fallen 0.3 percentage

point (forecasts ranged from -0.0 to -0.3 point) in April-June for the first

drop in four quarters after rising 0.1 percentage point in the previous three

months.

     The BOJ's real export index fell 0.5% on quarter in the second quarter

after rising 2.9% in the first quarter and 2.4% in the fourth quarter of 2016 as

solid gains to the U.S. and Europe was more than offset by declines in shipments

to Asia and other regions.

     "Real exports fell on quarter in April-June, but the drop seems to be in

response to large gains in the previous quarter and does not suggest a slump in

global growth." said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset

Management.

     "Net exports are estimated to have fallen 0.2% on quarter in Q2 as imports

grew at a faster pace than exports did," Hamagin Research Institute economist

Yuki Endo said. "But the slowdown seems to be temporary, as telecommunications

equipment exports are likely to pick up toward year-end as demand for iPhone

parts increases."

     NLI Research Institute said in a report that the economic recovery in the

second half of calendar 2016 was due mainly to overseas demand but that the

economy is moving toward a recovery led by domestic demand this year.

     Looking ahead, economists expect a moderate economic recovery to continue

in July-September, based on a rise in exports and a moderate recovery of

domestic demand. But they also warned that the uncertainty over global demand is

a high downside risk to Japan.

     Mizuho Research Institute said in a report that a recovery of overseas

economies would support exports and capital investment in the third quarter.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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