UPDATE 1-Japan capex stabilising, strong yen a threat

* Yen near 15-year high versus dollar; risk trades suffer

* BOJ seen willing to ease after political uncertainty ends

* Japan's Q2 GDP likely to be revised up due to capex gains (Adds economist's quote, details)

By Stanley White

TOKYO, Sept 8 (Reuters) - Japanese machinery orders surged by the most in seven months in July, but economists worry that a surging yen and a slowdown in overseas economies could snuff out a gradual recovery in capital expenditure.

Second-quarter gross domestic product growth is likely to be revised up on Friday as corporate spending grew faster than initially estimated, although the financial markets are focused on worries about the outlook.

The Bank of Japan has indicated it was willing to ease monetary policy to help the economy but will bide its time until the ruling party decides who will be the country's next leader.

Japanese Prime Minister Naoto Kan is fighting to retain his post in a leadership vote next week in the ruling Democratic Party that pits him against party powerbroker Ichiro Ozawa.

The race appears too close to call and could distract Kan's cabinet from policymaking as the yen's climb to a 15-year high against the dollar threatens the economic recovery.

"Given the yen's rise and a slowdown in overseas economies, corporate investment will likely remain sluggish even if it picks up from low levels," said Junko Nishioka, chief economist for Japan at RBS Securities in Tokyo.

"As markets focus on the yen's strength, the government should take steps to help financing of small firms. The BOJ, meanwhile, should strengthen its monetary easing stance even if it risks being criticised for bowing to government pressure."

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Graphic on capex link.reuters.com/mak99n

More stories on Japan's economy [ID:nECONJP]

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VOLATILE SERIES

Core private-sector machinery orders, a highly volatile series regarded as a leading indicator of capital spending, rose 8.8 percent in July, the biggest gain since a 15.4 percent rise in December and more than the median market forecast for a 1.8 percent increase. [JPMORD=ECI] ECONJP

Core morders rose 15.9 percent in July from the same period a year earlier, also exceeding the median estimate for an 8.1 percent annual increase, Cabinet Office data showed on Wednesday.

The markets showed little reaction to the data, with the Nikkei stock average .N225 slipping 2 percent in early trade as it took its cues from the yen's rise to a fresh 15-year high against the dollar.

Manufacturers' orders rose 10.1 percent in July, following a 9.9 percent increase in June, as government subsidies and incentives continued to support domestic consumption. The data also showed that orders from the services sector rose 8.1 percent, the first increase in three months, in a sign of stabilising domestic demand.

Japan's current account surplus rose 26.1 percent in July from a year earlier, Ministry of Finance data showed, above the median market forecast for a 17.5 percent increase. [JPCURA=ECI]

The annual increase followed an 18.2 percent drop in the previous month and was the first rise in three months. The surplus stood at 1.6759 trillion yen ($20 billion), against a median forecast for 1.5615 trillion yen.

Revised second-quarter gross domestic product likely rose 0.4 percent from the previous quarter, more than a preliminary reading of 0.1 percent growth as capital expenditure improved, according to a Reuters survey before the release of the data on Sept. 10. [ID:nTOE682072]

The BOJ stood pat on monetary policy on Tuesday but vowed timely action when needed, setting the stage for possible easing next month when it has clarity on the country's political leadership and the strong yen's damage to the slowing economy. [ID:nSGE6860ED] (Editing by Edmund Klamann)