By Stanley White
TOKYO (Reuters) - The contraction in Japan's economy from April-June is expected to be worse than initially reported last month when revised data is published on Monday, reflecting a slump in capital expenditure and underscoring concerns that the blow from April's sales tax rise may have been harder than first believed.
A leading indicator of capital expenditure is also forecast to show that business investment will lose momentum, which could make the government reluctant to go ahead with another sales tax increase scheduled for next year.
The data may suggest an economic rebound widely expected in July-September could lack momentum, keeping policymakers under pressure to expand fiscal and monetary stimulus.
"The way things are going, the economy could undershoot our growth forecasts for the third quarter," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.
"That would still be enough to raise the sales tax again, but the chances of more fiscal spending would increase."
Japan's economy is forecast to have shrunk an annualised 7.0 percent in April-June, according to a Reuters poll of 27 economists. That would be larger than a preliminary 6.8 percent annualised decline.
Compared to the previous quarter, the economy contracted 1.8 percent, more than a preliminary 1.7 percent, according to the poll. The Cabinet Office will release revised GDP data at 00:30 p.m. BST on Sept. 7.
Capital expenditure may have fallen 3.5 percent in April-June, the poll found, which is a bigger than the 2.5 percent decline initially reported.
Data due next week is forecast to show that machinery orders, a highly volatile data series regarded as a leading indicator of capital spending, rose 4.0 percent in July from the previous month.
That would mark a slowdown from 8.8 percent growth in the previous month, raising concerns that business investment may not be strong enough to support the broader economy.
Policymakers had predicted the economy will shrink in the April-June quarter as consumers withheld spending after a spending spree ahead of the sales tax hike to 8 percent from 5 percent on April 1.
But a recent run of weak data, including a slump in household spending and tepid output growth in July, has cast doubt on their forecast that the economy will rebound steadily in the current quarter to sustain a moderate recovery.
The pace of growth from July will be crucial to Prime Minister Shinzo Abe's decision, expected by year-end, on whether to proceed with a scheduled second increase in the sales tax to 10 percent in October next year.
In one positive sign, the current account balance due next week is forecast to swing to a surplus of 444.2 billion yen (4.22 billion pounds) in July from a 399.1 billion yen deficit in the previous month as exports to the United States show signs of recovery.
(Editing by Eric Meijer)