Japanese firms cut capital spending by 4.9 percent in April-June from a year earlier, data showed on Monday, confounding forecasts and adding to views that the Bank of Japan will hold off from raising rates this month.  I challenge this and think rates will definately be rising.

The first decline in 17 quarters, in sharp contrast with a median forecast by economists for an 11.5 percent rise, signaled that economic growth for the quarter could be revised down from preliminary figures.  The yen was little changed near 115.80 to the dollar after the data’s release, while the Nikkei share average (.N225) opened down 0.35 percent at 16,511.07.

Excluding software, capital spending fell 5.7 percent from a year earlier and was down 10.2 percent from the previous quarter on a seasonally adjusted basis, the survey by the Ministry of Finance showed.  The survey also showed Japanese firms’ recurring profits rose 12.0 percent in April-June, while sales were up 3.3 percent.

Economists watch the ministry’s capital spending data closely as it is used in calculating revised GDP figures for the quarter. April-June GDP will be issued on September 10.  Preliminary data showed Japan’s economy expanded for the 10th straight quarter in April-June but grow slowed to an annualized 0.5 percent from the previous quarter’s 3.2 percent on softness in exports and personal spending.

Brisk business expenditure has been a key driver of Japan’s economy, which is enjoying its longest spell of growth in the postwar era, albeit at a slower pace than in previous booms.  Some economists said the survey’s weakness was partly due to one-off factors.

“The lower-than-expected reading appears to be due to changes in survey samples especially in small and mid-sized firms. As the manufacturing sector showed double-digit growth, corporate capital expenditures are not as weak as the data indicates,” said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.  With chances of a September BOJ rate hike fading, market traders will look at the central bank’s tankan corporate sentiment survey, due in early October, for clues on whether a rate hike will come next month.

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