June 2, 2014 / 12:50 AM / in 4 years

UPDATE 1-Japan Q1 revised GDP seen little changed after solid capex growth

* Q1 capex +7.4 pct yr/yr, +3.1 pct qtr/qtr

* Recurring profits +20.2 pct yr/yr, sales +5.6 pct yr/yr

* MOF data shows business investment climate is solid

* Revised GDP data due 8:50 a.m. June 9 (2350 GMT June 8)

By Stanley White

TOKYO, June 2 (Reuters) - Japan’s companies raised capital expenditure in January-March for a third straight quarter, suggesting that revised data will show the economy maintained its fastest growth in more than two years.

The 7.4 percent year-on-year rise in capital expenditure followed a 4.0 percent increase in the previous quarter, finance ministry data showed on Monday.

Compared with the previous quarter, capital spending excluding software rose a seasonally adjusted 3.1 percent, the third straight quarter of gains in an encouraging sign of vigorous business investment.

The data suggests Japan’s first quarter growth is likely to be little changed from the initial estimate, which could ease concerns about the impact of a sales tax increase on the economy.

“Concern about the tax hike seems unwarranted because non-manufacturers are investing to boost capacity,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

“The government’s growth strategy still needs to encourage manufacturers to build new plants domestically. There is a risk that the growth strategy will disappoint, so monetary policy may have to pick up the slack.”

Preliminary data showed Japan’s economy grew 1.5 percent in January-March from the previous quarter, the fastest gain in more than two years. In annualised terms, the economy expanded 5.9 percent, due to a surprising rise in capital expenditure and strong consumer spending.

In preliminary GDP data, capital expenditure grew 4.9 percent, more than double the median estimate for 2.1 percent growth.

Revised gross domestic product data is due on June 9. The finance ministry data released on Monday is used to re-calculate the capital expenditure component of GDP.

Even if the growth number were little changed, it would be an encouragement for Prime Minister Shinzo Abe who is keen for Japan Inc to spend more of its cash pile of over 200 trillion yen ($2 trillion) and raise wages to help drive a sustainable economic recovery.

Abe is leaning toward a cut in the corporate tax rate, which is one of the highest among major economies, to spur corporate activity and lure foreign firms to Japan.

Economists, though, are worried about how quickly the economy can rebound from an increase in the national sales tax to 8 percent from 5 percent on April 1.

The Bank of Japan has repeatedly expressed its confidence that the economy can withstand the impact from the tax rise and is on track to meet the central bank’s 2 percent inflation target. As a result, some economists are starting to push back their expectations for additional monetary easing.

Abe’s government is expected to announce another installment of its “three arrows” economic growth strategy some time in the middle of the year. In addition to the corporate tax cut, the government may also relax rules on foreign workers and could even take steps to legalise casino gambling to give the economy a jolt. (Editing by Eric Meijer)

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