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Capital spending by firms in all industries fell 16.8 percent in the January-March quarter from a year earlier to 11.05 trillion yen, the Finance Ministry said Wednesday.

It marked the second consecutive quarterly drop.

The contraction was the largest since an 18.7 percent fall in the October-December quarter of 1998, a ministry official said.

Reflecting the nation’s ongoing economic slump, plant and equipment investment by manufactures registered a 27.8 percent decrease from the previous year to 3.34 trillion yen, while nonmanufacturer capital spending fell 11 percent to 7.71 trillion yen.

The figures will be used to help calculate gross domestic product for the January-March quarter, which is to be released Friday.

Corporate sales on an all-industry basis fell a record 7.4 percent in the period to 331.8 trillion yen, marking the third straight quarterly fall.

Sales by manufacturers suffered a 9.6 percent drop to 93.88 trillion yen in the period. The fall was attributed to the slump in the electric machinery industry following the burst of the so-called IT bubble.

Sales by nonmanufacturers were also down 6.4 percent to 237.91 trillion yen, with the ongoing consolidation of the distribution sector affecting wholesalers and retailers, the official said.

Meanwhile, corporate pretax profits for the period dropped 14.6 percent year on year to 9.38 trillion yen on an all-industry basis.

Manufacturers’ profits dropped 42.2 percent to 2.77 trillion yen, but nonmanufacturers managed to secure a 6.9 percent rise in profits to 6.6 trillion yen, led by the services industry.

The survey, conducted last month, covered 22,964 randomly selected firms with capitalization of 10 million yen or more, excluding those in the financial sector, of which 18,002 responded.

A separate business sentiment survey issued by the ministry showed that business confidence of companies of all sizes and categories for the current quarter has improved from three months ago, indicating the worst may be over.

The business sentiment index for large firms, defined as those capitalized at 1 billion yen or more, came to minus 8.6 for the April-June quarter, better than the minus 21.5 logged three months ago.

The index for midsize firms, defined as those capitalized between 100 million yen and 1 billion yen, registered minus 17 compared with minus 29.1.

Small firms, capitalized at 10 million yen to 100 million yen, logged minus 37, improving from 40.5.

The index, which covers all business sectors other than finance and insurance, represents the difference between the percentage of firms reporting improved business conditions and those reporting a deterioration.

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