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Japan's Capital Spending Rises; Manufacturing Sector Contracts

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Japan's Capital Spending Rises; Manufacturing Sector Contracts
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Japanese firms’ capital investment increased in the second quarter despite the Sino-U.S. trade war but companies reported a notable fall in profits compared to last year.

The manufacturing sector logged one of the strongest contraction seen over the past three years in August as output and orders continued to decline, while employment was the only positive indicator, according to survey data from IHS Markit released Monday.

The Ministry of Finance said that overall investment in plant and machinery by companies grew 1.9 percent in the second quarter, faster than the forecast of 1.7 percent.

Investment in plant and machinery by manufacturing companies declined 6.9 percent, while that of non-manufacturing firms gained 7 percent.

At the same time, company profits plunged 12 percent in the second quarter, in contrast to an increase of 10.3 percent in the previous quarter.

The Jibun Bank Japan Manufacturing Purchasing Managers’ Index was little changed at 49.3 in August. A score below 50 indicates contraction.

Demand remained weak across domestic and overseas markets. Survey respondents mentioned China as a particular source of weakness, with data showing reduced inflows of new export orders.

“With external and domestic headwinds aplenty, it is difficult to envisage any near-term improvements in Japan’s manufacturing sector,” Joe Hayes, an economist at IHS Markit, said.

Firms’ outlook for next twelve months remained subdued in August. The end of Olympic Games-related work, as well as the planned consumption tax hike later this year were expected to adversely impact output volumes.

The material has been provided by InstaForex Company – www.instaforex.com