TOKYO (Reuters) – Japanese firms raised capital spending for the fourth straight quarter in January-March, underscoring the resilience of business investment led by manufacturers despite uncertainty over the COVID pandemic and the war in Ukraine.
Firm business expenditure could raise hopes for policymakers counting on cash-rich Japanese corporations to splurge on investment in plants and equipment to underpin a domestic demand-led economic recovery.
Capital expenditure in the first quarter of this year rose 3.0% from the same period last year, following a 4.3% increase seen in the fourth quarter, Ministry of Finance (MOF) data showed on Wednesday. Gains were led by manufacturers of transport equipment due to investment in new technology, and metals producers facing the need to boost output capacity.
The reading will be used to help calculate revised gross domestic product (GDP) numbers due next Wednesday. Some economists expect a downward revision.
“Capital spending remained firm particularly among manufactures led by solid demand, but the service sector was reeling from the pandemic. As such it was not strong enough to bring upward revision to GDP,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“As the Japanese get used to the idea of living with coronavirus and border controls ease, service sector activity and inbound tourism will pick up, helping gradual recovery of capital spending and the broader economy going forward.”
The world’s No.3 economy contracted 1.0% in the first quarter of this year, preliminary data showed, as coronavirus curbs, supply disruptions and rising raw material costs hit consumption. The economy recorded two quarters of contraction in the past year, underscoring a fragile recovery.
Many economists expect the economy to return to growth in the coming quarters although the prospects for a V-shaped recovery are fading given the Ukraine crisis and the risk of resurgence in coronavirus infections.
By sector, the MOF data showed manufacturers’ business spending improved 5.9% from a year earlier, reaching near pre-pandemic levels, while that of non-manufacturers advanced 1.6%, still below levels seen before COVID.
Corporate recurring profits rose 13.7% in January-March from a year earlier to reach 22.8 trillion yen ($177 billion) – a record amount for a first quarter — while sales were up 7.9%.
“Both sales and profits have increased, but weakness is seen in auto and electric machinery sectors due to supply restrictions and surging raw materials prices,” a MOF official said.
“The recovery is uneven and depends on the size and the type of business.”
On the quarter, capital expenditure rose 0.3% in January-March from the previous three months on a seasonally-adjusted basis, the MOF data showed.
($1 = 129.1300 yen)