Japan's second-quarter capex leaps, raises hopes for business-led recovery

By Tetsushi Kajimoto

TOKYO (Reuters) - Japanese corporate capital expenditure jumped in April-June by its most since 2006, raising hopes for sustainable economic recovery led by the private sector, although global trade tensions cloud the outlook for an export-reliant economy.

Ministry of Finance (MOF) data out on Monday showed capital expenditure in the second quarter rose 12.8 percent from the same period last year, led by investment in the production of cars and electronic components.

It marked a seventh straight quarter of annual growth in capital expenditure after posting 3.4 percent gain in the previous quarter. It was the sharpest annual gain since 2006.

MOF capex data, which will be used to update gross domestic product (GDP) figures for the second quarter due out Sept. 10, points to upward revision to growth estimate, analysts say.

Capital expenditure has been a bright spot in Japan's economy, the world's third largest, as companies update their fixed assets and invest in automation and labour-saving technology to cope with labour shortages.

However, a major trade war stemming from commercial tensions between the United States and China could hit the world economy hard, which would in turn hurt Japan's exports and discourage corporate investment.

"Second quarter GDP will be revised up," said Toru Suehiro, senior market economist at Mizuho Securities.

"Taking weakening factory output into account, however, capital expenditure will struggle to accelerate from now on."

A preliminary estimate found Japan's economy grew by an annualised rate of 1.9 percent in the second quarter on solid household and business spending.

Underscoring solid business activity, the Markit/Nikkei Japan Manufacturing Purchasing Managers' Index (PMI) rose to a seasonally adjusted 52.5 in August, above the 50 threshold that separates contraction from expansion, as new orders accelerated.

Monday's data comes after a recent batch of soft indicators such as factory output and retail sales cast doubts over the strength of Japan's growth in the current quarter.

Capital expenditure, excluding software, grew 6.9 percent in April-June from the previous quarter on a seasonally-adjusted basis, rising for a fourth straight quarter and the fastest gain since 2011, the MOF data showed.

Corporate recurring profits rose 17.9 percent in April-June from a year earlier, up for an eighth consecutive quarter, to a record 26.4 trillion yen ($237.67 billion).

Sales rose 5.1 percent year-on-year in April-June, up for a seventh straight quarter.

Corporate internal reserves grew 9.9 percent to a record 446.5 trillion yen in the fiscal year that ended in March, the data showed, suggesting companies remain cautious about spending more on wages and other business costs.

($1 = 111.0800 yen)

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)