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Business investment climbs for first time in three quarters

Kyodo

Japanese capital spending rose in the April-June quarter, logging its first increase in three quarters as the weakened yen and policy effects shored up stocks and companies and prompted the corporate sector to beef up investment, the government said Monday.

Companies’ higher spending on plants and new equipment suggests a brighter outlook for the world’s third-largest economy and could prompt Prime Minister Shinzo Abe to conduct the first stage of the doubling of the sales tax next year, analysts said.

Business investment by all nonfinancial sectors gained 0.02 percent from a year earlier to ¥8.31 trillion in the three months through June, following a 3.9 percent fall in the previous quarter, the Finance Ministry said.

In the October-December quarter, capital spending plunged 8.7 percent party because the yen had not yet been jawboned by the government and concern was lingering over the eurozone debt crisis.

But the pace of deterioration in investment slowed after Abe’s “Abenomics” plan, centered on the usual massive fiscal spending and drastic monetary easing by the Bank of Japan that drove down the currency, helped exports recover.

On a quarter-on-quarter basis, capital spending, excluding investment in software, climbed a seasonally adjusted 2.9 percent from the January-March quarter, up for the third quarter straight, the ministry said.

The data will affect revisions to Japan’s economic growth figures, with the Cabinet Office set to release revised gross domestic product data for the same period on Sept. 9.

If GDP is revised upward, it will strengthen the view that Abe’s administration, formed last December, will go ahead with a consumption tax hike to 8 percent from the current 5 percent next April to aid fiscal recovery, with expectations growing that the economy will be able to survive it.

Takeshi Minami, chief economist at Norinchukin Research Institute, said real GDP is expected to be upgraded to an annualized real 4.0 percent growth from a 2.6 percent rise, with capital spending also being raised to a 1.1 percent gain from a 0.1 decline.

“Japan’s economy is certainly on a recovery path,” Minami said, adding the revised GDP report could increase the possibility of the sales tax hike.

Abe has said he will make a final judgment on the tax issue after hearing the opinions of experts and examining Japan’s economic growth data in the April-June period, among other factors. His decision is expected to come before he attends the Asia-Pacific Economic Cooperation forum leaders’ meeting from Oct. 7 in Indonesia.

As a nonbinding target for the tax hike, legislation enacted last year stipulates that the government will seek to achieve nominal economic growth of around 3 percent and real growth of about 2 percent.

Japan’s economy expanded 1.0 percent in the final quarter of 2012 and 3.8 percent in the first three months of this year on an inflation-adjusted annualized basis.

A consumption tax increase is widely regarded as key to Japan’s fiscal rehabilitation, as the country’s fiscal health is the worst among major developed economies, with its public debt level at more than 200 percent of GDP.

The sales tax is scheduled to be raised to 10 percent by October 2015 to cover swelling social security costs at a time when Japan’s population is aging.