BOJ May Extend Bond-Buying Program as Capital Spending Falls Short

By TraderVox.com

Tradervox.com (Dublin) – Japanese companies’ capital spending gained by 6.6 percent according to a Finance Ministry report released on Monday in Tokyo. The increase fell short of market expectation which expected an increase of 7.8 percent. This is a big gain as a year earlier the figure fell by 8.2 percent. The report has sparked speculation that the Bank of Japan may embark on a bond purchases program to boost economy. Further, economists are expecting the government to revise its forecast that the economy grew by 1.4 percent in second quarter.  Japan’s economic woes are compounded by the declining consumer prices and the low industrial output registered in July. Economists have suggested that Japanese economy will shrivel due to the growing crisis in Europe and the strong yen in the forex market, which has reduced the countries exports.

Yoshimasa Maruyama, a Chief Economist in Tokyo at Itochu Corp, noted that the report showed capital spending figures that were lower than business spending figure in preliminary gross domestic product report. He concluded that this is an indication that companies in Japan have lowered their business spending and predicted that this trend might continue in the coming months. According to a RBS Security Japan Ltd report, the Bank of Japan may decide to expand its asset purchases program when the officials meet on September 18-19.

The Capital Spending report showed that company sales declined by 2.5 percent in April-through-June from the previous three months. The report also showed a decline in company spending by 0.5 percent in the same period. Junko Nishioka, a Chief Economist in Tokyo at RBS Securities Japan Ltd, noted that the major disappointing in the report was the decline in sales which was the first one in four quarters. The decline is an indication of declining production and exports in the country. Nishioka said that while Japan may not go into recession, the global slowdown has weakened the economy and the figures might force the government to revise its GDP forecasts downwards.

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