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Last Updated: Monday, 3 September 2007, 07:29 GMT 08:29 UK
Japanese investment level drops
Automated production line
Japanese firms have been hit by higher interest rates
Capital investment spending by Japanese firms fell in the April-to-June period compared with a year ago, raising worries of a wider slowdown.

Spending fell 4.9% from a year earlier to 11.6 trillion yen ($100bn; 50bn), government figures showed, the first drop in four years.

The weaker-than-expected figure means growth forecasts for the second quarter are set to be revised downwards.

Analysts also said that an interest rate rise is now unlikely this month.

The fall in capital spending was caused by a contraction in the leasing industry after an interest rate rise earlier in the year.

"One of the factors that affected the services sector was the price rise in the leasing business due to the rate hike in the market," according to an official from the finance ministry.

The sector saw a 22% drop in investment and represented half of the 13.1% decline seen in non-manufacturing firms' spending, figures showed.

The Bank of Japan increased interest rates to 0.5% in February - but there are still expectations that another rise will take place before the end of the year.

Japan has seen its longest period of economic growth since World War II, but there are fears that further rate rises could dent growth.

Following the recent market turmoil on the world's financial markets the Bank of Japan decided not to increase rates in August.

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