Business / Economy

Japan's fourth quarter business investment grew 3.8% on year

Kyodo

Capital spending by domestic firms rose 3.8 percent year-on-year in the October-December period, marking a turnaround as companies sought to boost output, government data showed Wednesday.

Business investment by all non-financial sectors for purposes such as building plants and introducing new equipment came to ¥10.94 trillion ($97 billion).

Lifted by moves to sell underperforming businesses, pretax profits at businesses in all sectors covered in the poll jumped 16.9 percent from a year earlier to a record-high ¥20.76 trillion, according to the Finance Ministry.

Capital spending has been one of the economy’s weak spots with companies reluctant to step up investment amid uncertainty about the economic outlook.

“Capital spending had appeared to be struggling but it came out strong this time,” said Satoshi Osanai, senior economist at the Daiwa Institute of Research.

The latest figures on business investment support the view that the economy “has been recovering moderately,” a Finance Ministry official said.

The government of Prime Minister Shinzo Abe has been encouraging companies to spend more to help the economy break with years of deflation.

Capital spending by manufacturers increased 7.4 percent from a year earlier to ¥3.93 trillion, while the nonmanufacturing sector marked a 1.9 percent gain to ¥7 trillion.

Business investment in all industries, excluding spending on software, gained 3.5 percent, the ministry said.

Sales by businesses rose 2 percent to ¥338.35 trillion, helped by gains in the food and chemistry sectors despite the adverse impact of the yen, which remained stronger than a year ago. The dollar averaged ¥109.43, down ¥11.18 from a year ago.

In anticipation of economic growth under U.S. President Donald Trump, the yen has recently weakened against the dollar. The depreciation is seen as a plus for many domestic exporters, but Trump’s protectionist trade policy has raised concerns.

“We’ve seen exports and output recovering on the back of the yen’s weakness, boosting not only the value but the volume of exports as well,” Osanai said.

“When it comes to big business investments, however, it often takes a few years for companies to make plans and carry them out,” Osanai added. “So uncertainty about the future, including Trump’s policies, could be making companies still cautious.”

The data will affect revisions to the gross domestic product for the same period due to be released by the Cabinet Office on March 8.

The office said in February that the economy expanded an annualized real 1 percent in the three-month period that ended in December for the fourth straight quarterly increase, lifted in large part by strong exports, with corporate capital spending rising 0.9 percent.

The ministry surveyed 31,461 companies capitalized at ¥10 million or more, of which 23,212, or 73.8 percent, provided valid responses.