ANALYSTS: Japan Q2 GDP To Be Revised Down Sharply on Capex

     TOKYO (MNI) - Japan's strong economic growth in the second quarter will be

revised down sharply from the preliminary estimate because business investment

appears to be weaker than initially reported, economists forecast Friday.

     The Cabinet Office will release revised (second preliminary) GDP data for

the April-June quarter at 0850 JST on Friday, Sept. 8 (2350 GMT Thursday).

     The median forecast by eight economists for revised Q2 GDP is +0.7% on

quarter, or an annualized +2.7%, down from the preliminary estimates of +1.0%

q/q, or an annualized +4.0%. The forecasts ranged from +0.5% to +0.8% q/q, or

+2.1% to +3.2% at an annualized pace.

     According to the preliminary Q2 GDP data, Japan's Goldilocks economy posted

exceptionably high growth, as strong domestic demand -- led by consumption,

business investment and public investment -- offset what is seen as a temporary

slip in external demand.

     The sixth straight quarterly expansion in GDP followed +0.4% on quarter, or

an annualized +1.5%, in January-March. It continued to exceed the economy's

potential growth rate estimated at under 1%.

     Capital investment is forecast by economists to be revised down sharply to

+0.2% on quarter from the initial reading of +2.4%, with forecasts in a range of

-0.2% to +1.6%, following Friday's release of the Ministry of Finance's

quarterly survey of major companies. The forecast result would be slower than

the 0.9% gain in Q1.

     The contribution of business investment to total output will be revised

down sharply from the initial estimate of a 0.4 percentage point addition.

     Economists also expect public investment to be revised down slightly to a

rise of 4.8% on quarter in Q2 from a preliminary 5.1% rise. The forecasts ranged

from +3.7% to +5.3%.

     Private consumption is expected to be unrevised from the preliminary

estimate of +0.9% on quarter in the April-June quarter. It pushed up the Q2 GDP

by 0.5 percentage point.

     In preliminary data, the rise in private consumption, which accounts for

about 60% of the GDP, accelerated in Q2 from the previous quarter.

     The contribution of the change in private-sector inventories to the total

domestic output is forecast to be revised up slightly to +0.1 percentage point

from zero percentage point reported last month.

     Economists expect the contribution of external demand to be unrevised.

     Net exports of goods and services -- exports minus imports -- made a

negative 0.3 percentage point contribution to total domestic output, in what

government officials and economists see as a temporary dip in shipments to Asia.

It was the first drop in six quarters following +0.1 percentage point

contribution in Q1.

     The Ministry of Finance survey released Friday showed that combined capital

investment by non-financial Japanese companies rose 1.5% on year in the

April-June quarter, the third straight quarter of increase after rising 4.5% in

January-March.

     The pace of business investment decelerated as firms remained cautious

about implementing plans amid uncertainty over global and domestic demand.

     On quarter, combined capital outlays (excluding software) posted the first

drop in three quarters, down 2.8% after +0.9% in Q1.

     The MOF survey based on the demand side is the key to calculating revisions

to Q2 GDP. Capex in preliminary GDP is based solely on supply side data.

     The amount of business investment reported in the MOF survey fell a sharp

33.9% to Y9.45 trillion in April-June from Y14.29 trillion in January-March. It

is much weaker than the 28.6% decline on quarter in nominal demand-side capex

estimated by the Cabinet Office based on nominal supply-side capex figures that

were available in preliminary GDP data.

--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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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