Capital spending by Japanese companies rose 4.5 percent year-on-year in the January-March quarter, reaching the highest level in nine years, the Finance Ministry said Thursday, providing evidence that the economy has been picking up momentum.
Business investment by all non-financial sectors for purposes such as building plants and introducing equipment stood at ¥14.29 trillion ($129 billion), marking the second straight quarterly gain and the highest since the January-March quarter of 2008, shortly before the start of the global financial crisis.
Pretax profits at businesses covered in the poll surged 26.6 percent from a year earlier to ¥20.13 trillion, the highest on record for the January-March period.
Capital spending data has been closely watched as the government of Prime Minister Shinzo Abe is encouraging companies to step up investment and raise wages to achieve economic growth driven more by domestic demand.
Japan’s economy has been lifted by robust exports to Asia, with companies stepping up output. A recovery in crude oil prices also helped businesses that trade in resources.
The latest figures reflects that the economy is “on a moderate recovery path,” a ministry official said.
Capital spending by manufacturers increased 1 percent from a year ago to ¥4.72 trillion, reflecting moves to boost auto production and build oil-refining facilities.
The nonmanufacturing sector registered a 6.3 percent gain to ¥9.57 trillion, helped by demand from the real estate industry.
“The momentum for capital spending is still not strong enough if you see pretax profits staying at such high levels. But I expect capital investment will continue to pick up,” said Taro Saito, senior economist at the NLI Research Institute.
“We should also note that the nonmanufacturing sector increased capital spending more than the manufacturing sector,” Saito said, pointing to growth in sectors linked to domestic demand.
When spending on software is excluded, business investment in all industries rose 1.3 percent from the previous quarter, according to the ministry’s data.
Sales by businesses gained 5.6 percent to ¥350.64 trillion.
Thursday’s data will be reflected in Japan’s revised gross domestic product data for the January-March quarter due to be released on June 8 by the Cabinet Office.
In the first three months of 2017, the world’s third-largest economy grew for a fifth straight quarter, the longest growth run since 2006, aided by robust overseas demand and a gain in capital expenditure, government data showed.
But economists point out that both private consumption and capital spending, the two key components of the economy, need to gather further strength.
In the January-March quarter, the U.S. dollar averaged ¥113.56 while the euro traded at ¥121.02.
The ministry surveyed 31,096 companies capitalized at ¥10 million or more, of which 22,720, or 73.1 percent, provided valid responses.