MNI DATA IMPACT: Japan Q2 Capex Down; GDP Seen Revised Lower

Combined capital investment by non-financial Japanese companies fell 11.3% in Q2, worsening sharply from the 0.1% rise in Q1, a quarterly revised survey released by the Ministry of Finance Tuesday showed.

Based on the MOF data on capex and inventories, the government is likely to revise down its estimate of Q2 real GDP from the preliminary -7.8% q/q, or an annualized -27.8%.

Capital investment plans in the current fiscal year were revised lower on the back of the heightened uncertainty over the global economy and domestic demand caused by the coronavirus outbreak.

Capex excluding soft-ware fell 10.4% y/y in Q2, down from -1.4% in Q1. This will be incorporate into revised second preliminary Q2 GDP, while in the manufacturing sector, it fell 9.7% y/y in Q2, down from a decline of 5.3% in Q1. In the non-manufacturing sector, it fell 12.1%, down from +2.9% in Q1.

The MOF survey, based on the demand side, is the key to calculating Q2 GDP revisions (due Sept. 8). Capex in preliminary GDP, based solely on supply side data, fell 1.5% q/q and pushed total domestic output down by 0.2 percentage point.

Combined non-financial current profits fell 46.6% y/y in Q2, down from -28.4% in Q1. Current profits at manufacturers fell 48.7% y/y in Q2 vs -25.3% in Q1, while those at non-manufacturers also fell 45.5% in Q2 vs. -29.6% in Q1.