Q2 Capex Falls, Weaker Than Initial Estimates, Q2 Profits Better Than Forecast

Japan's Q2 capex and company profits data were mixed relative to expectations. On the capex side we surprised on the downside, spending in y/y terms at 4.5%, nearly half the 8.3% consensus, while the prior was 11.0%. Ex software capex spending also disappointed, printing 4.4% y/y, versus 7.5% forecast and 10.0% prior. Profits were better, +11.6% y/y, versus -0.1% forecast and 4.3% prior. Company sales were 5.8% y/y, versus 4.3% forecast and 5.0% prior.

• In terms of the Capex details, we fell 1.2% in q/q terms, while ex software this fall was a little larger at -1.6%. These are the first falls since Q1 2022 and contrast with the initial Q2 GDP report, which showed flat q/q business spending.
• Weakness was concentrated in the non-manufacturing sectors, -2.5% q/q, with manufacturing capex +1.2% q/q. The y/y capex pace is back to mid 2022 levels.
• On the profits side, strength was evident for both manufacturing (12.5% q/q) and non-manufacturing (8.0%q/q). On the sales side, strength was more evident for manufacturing (+4.5% q/q), versus non-manufacturing (0.3%q/q).