Capital spending logs biggest rise since ’97

10.2% climb in January-March period shows recovery has broadened

Capital spending by Japanese companies jumped 10.2 percent in the January-March quarter from a year earlier on an all-industry basis, according to a Finance Ministry survey released Thursday.

The rise was the biggest since the 13 percent leap in the January-March quarter of 1997, providing further evidence that the nation’s export-driven recovery has broadened to domestic demand, along with recent upticks in personal consumption.

It was the fourth straight quarterly increase in capital spending, following the 5.1 percent rise the previous quarter, backed by brisk spending among manufacturers of semiconductors, liquid-crystal displays and other digital-related products, according to the quarterly survey.

Private-sector economists said the upbeat findings are likely to boost revised data for Japan’s gross domestic product for the January-March quarter, which will be released Wednesday.

“The strong capital spending for the reporting quarter showed that domestic demand has remained firm,” said Masaaki Kanno, chief economist at J.P. Morgan Securities Asia Pte. Ltd.

“It is expected that the data will work positively, though slightly, when the government revises GDP data next week.”

The Cabinet Office said in a preliminary report in May that Japan’s GDP grew 1.4 percent, or an annualized 5.6 percent, in real terms in the January-March period, up for the eighth straight quarter on robust exports and a pickup in private consumption.

The growth rate had already topped the average market projection of 1 percent, or an annualized 3.9 percent.

Kanno said that small and midsize companies have followed major companies in expanding capital spending, citing a 25 percent jump among companies capitalized at between 10 million yen and 100 million yen and a 16.8 percent increase among companies capitalized at between 100 million yen and 1 yen billon.

This compares with a 3.6 percent rise among companies capitalized at 1 billion yen or more.

According to the survey, manufacturers spent 19.7 percent more on plant and equipment than they did a year earlier, marking the fourth straight quarterly increase and the highest since the January-March period of 2001.

The strong reading was led by a 101.5 percent climb by general machinery and a 44.8 percent rise by electric machinery.

Nonmanufacturers spent 6.3 percent more, up for the second straight quarter, led by a 22.2 percent rise among wholesalers and retailers and a 5.6 percent increase among service providers.

Combined corporate pretax profit for the January-March period increased 24.6 percent from a year earlier, marking the seventh straight quarterly expansion.

Manufacturers’ pretax profit rose 25.1 percent, up for the seventh straight quarter, while that of nonmanufacturers rose 24.3 percent, up for the fourth consecutive quarter.

Analysts said the strong growth in pretax profit underlined the fact that nonmanufacturers and small companies have enjoyed the fruits of recovery, which many think tanks expect will continue until the next fiscal year.

But concerns have been cited over recent spikes in crude oil prices and possible interest-rate increases in China and the United States. These scenarios are viewed as risk factors for the Japanese economy.

“With profits and sales rising, companies have started taking forward-looking moves, such as increasing capital spending and cutting debts,” said J.P. Morgan’s Kanno. “We expect companies to finish cleaning up their balance sheets in one to two years.”

Combined sales increased 2.4 percent for the fourth straight quarter. Sales among manufacturers climbed 4.3 percent, up for the sixth straight quarter, while those among nonmanufacturers rose 1.5 percent, up for the fourth quarter in a row.

The Finance Ministry polled 23,459 companies selected at random from among those capitalized at 10 million yen or more, of which 79.6 percent responded. It excluded financial institutions.