Capital spending jumped 7.4 percent in the January-March quarter compared with a year ago to log the sharpest rise in nearly two years, as Japan Inc. beefed up investment ahead of the first consumption tax hike in 17 years.
Business investment by all nonfinancial sectors for such purposes as building plants and introducing new equipment climbed for the fourth straight quarter to ¥12.23 trillion in the period, the Finance Ministry said Monday.
Capital spending, which accounts for around 15 percent of Japan’s GDP, grew at its fastest pace since the April-June quarter of 2012, a year after the economy plunged in the aftermath of the March 2011 quake, tsunami and nuclear crisis.
The results suggested the Japanese economy “has been recovering moderately,” a ministry official said. It is expected to face a temporary downturn in light of the first stage of the tax hike, but the economy may rebound as the negative impact wanes, the official added. A second tax hike to finally double the rate to 10 percent is due next year.
On a quarter-on-quarter basis, business investment, excluding in software, climbed a seasonally adjusted 3.1 percent from the October-December quarter, up for four quarters in a row, the ministry said.
After the readings, the government will revise gross domestic product data for the same period and release it on June 9.
Real GDP is expected to be revised to an annualized real 5.2 percent growth rate, down from 5.9 percent. Capital spending is expected to be revised to a 4.2 percent rise, down from a 4.9 percent quarter-on-quarter increase, said Takeshi Minami, chief economist at the Norinchukin Research Institute.
Growth in business investment may have been weaker than initial government estimates, he said.
Minami added the pace of growth in the world’s third-biggest economy is likely to slow later this year, given that the tax hike would increase the burden on consumers by ¥8 trillion in total.
If concern grows that the economy will stall, firms “would become unwilling to bolster their investment down the road,” he said.
A preliminary GDP report released May 15 said that Japan’s economy expanded for the sixth consecutive quarter, underscoring a rush in domestic demand prior to the consumption tax hike to 8 percent from 5 percent on April 1.
Monday’s reading showed capital spending by manufacturers rose for the second straight quarter, up 6.8 percent on year to ¥4.11 trillion. Nonmanufacturers posted a 7.7 percent rise to ¥8.12 trillion, up for the fourth consecutive quarter.
During the first quarter, sales by businesses in all sectors covered in the poll rose 5.6 percent to ¥345.33 trillion, while pretax profit soared 20.2 percent to ¥17.46 trillion.
The ministry surveyed 30,438 companies capitalized at ¥10 million or more, of which 22,403, or 73.6 percent, provided valid responses.
The yen dropped by ¥10.35 to ¥102.77 against the U.S. dollar from a year before, on an average basis, in the January-March period. That was due in part to the Bank of Japan’s aggressive monetary easing steps, the ministry said.