Business / Economy

Capital spending up second quarter as low yen ups profits

Kyodo

Capital spending by Japanese firms rose for the second straight quarter in the July-September period, as the weaker yen helped bolster corporate profits, prodding companies to beef up investment, the government said Monday.

Business investment by all nonfinancial sectors for purposes such as building plants and introducing new equipment gained 1.5 percent from a year earlier to ¥8.94 trillion in the three months through September, following a 0.02 percent climb in the previous quarter, the Finance Ministry said.

“With corporate profits improving, capital spending has been moving upward,” a ministry official said, expressing hope that an upturn in domestic demand would contribute to conquering nearly two decades of deflation.

But on a quarter-on-quarter basis, business investment, excluding investment in software, fell a seasonally adjusted 0.5 percent from the April-June period, down for the first time in four quarters, the ministry said, suggesting some firms have become wary of the outlook for the world’s third-biggest economy.

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

Takeshi Minami, chief economist at Norinchukin Research Institute, said real GDP is expected to be downgraded to an annualized real 1.0 percent growth from a 1.9 percent rise, with capital spending also being dropped to a 0.7 percent fall from a 0.2 increase.

“Ahead of (the) planned consumption tax hike, business investment has shown little sign of gaining momentum,” Minami said.

The government will raise the sales tax to 8 percent from the current 5 percent next April, aiming to cover swelling social security costs for Japan’s aging population, as its fiscal health is the worst among industrialized nations.

Fears, however, have lingered that the tax measure will hurt consumer spending and choke the nascent economic recovery, making the corporate sector more reluctant to shore up business investment, which Abe sees as a pillar of economic growth, analysts said.

A preliminary GDP report released Nov. 14 showed the economy slowed in the July-September period, following a 3.8 percent expansion the previous quarter, raising concern that the effectiveness of the government’s “Abenomics” policy mix is waning.

Capital spending accounts for around 15 percent of GDP.

Monday’s reading showed spending by manufacturers fell 6.7 percent from a year earlier to ¥3.11 trillion, though nonmanufacturers logged a 6.6 percent increase to ¥5.83 trillion.

During the third quarter of 2013, sales by businesses in all sectors covered in the poll rose 0.8 percent to ¥318.84 trillion, while pretax profit jumped 24.1 percent to ¥12.97 trillion.

The ministry surveyed 31,150 companies capitalized at ¥10 million or more, of which 22,925, or 73.6 percent, provided valid responses.

The yen has been on a downtrend on the back of the Bank of Japan’s aggressive monetary easing steps — one of the three arrows of Abenomics along with large-scale public works projects and an economic growth strategy aimed at invigorating private-sector investment.

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