Capital spending by companies dropped 3.9 percent in the first quarter from a year earlier as companies remained wary of the economic outlook despite the weaker yen and budding hopes for a recovery in exports, the government said Monday.

Business investment by all nonfinancial sectors for purposes such as building factories and introducing new equipment fell for the second straight quarter in January-March. It totaled ¥11.39 trillion during the three months, the Finance Ministry said.

Growth in domestic demand, along with higher private capital spending, is vital if the Abe administration is going to achieve its goal of overcoming nearly two decades of deflationary recession, analysts said.