Corporate profits in the April-June quarter sank 12.0 percent from the previous year as escalating trade tensions between the United States and China took their toll, Finance Ministry data showed Monday.
Still the ¥23.23 trillion ($218.83 billion) tally for pretax profits was the second-highest on record, coming off a 10.3 percent jump in the January-March quarter.
Capital spending by manufacturers for such tasks as building factories, adding equipment and software fell 6.9 percent to ¥3.62 trillion, down for the first time in eight quarters.
Telecommunications equipment and electronic machinery makers contributed to the sluggish results amid declining overseas demand for such items as car and smartphone parts amid trade friction between the world’s two biggest economies.
Investment by all nonfinancial sectors meanwhile rose 1.9 percent to ¥10.87 trillion, up for the 11th consecutive quarter, after expanding 6.1 percent in the previous quarter.
On a quarter-on-quarter basis, seasonally adjusted capital expenditures grew 1.5 percent.
Sales edged up 0.4 percent to ¥345.91 trillion, rising for the 11th quarter straight, supported by gains in the services and real estate sectors.
The Cabinet Office is scheduled to release revised gross domestic product data for the second quarter on Sept. 9, taking into account the latest capital spending figures.
Preliminary GDP data show the world’s third-largest economy grew at an annualized rate of 1.8 percent in the April-June quarter, supported by solid consumer spending and capital expenditure.
A ministry official who briefed reporters said the results from its latest corporate survey reflect the state’s official view that the economy is recovering at a moderate pace.
Takeshi Minami, chief economist at the Norinchukin Research Institute, warned that the robust corporate appetite for investment may take a hit after October, when the consumption tax rises to 10 percent from 8 percent.
“There is the possibility that fallout from the consumption tax hike could rapidly spread among nonmanufacturers,” which are less vulnerable to global economic trends than manufacturers, Minami said.
The Finance Ministry surveyed 32,107 companies capitalized at ¥10 million or more and 22,729, or 70.8 percent, responded.
In fiscal 2018 through March, capital spending rose 8.1 percent to ¥49.13 trillion. Pretax profits rose a slight 0.4 percent to ¥83.92 trillion, while sales declined 0.6 percent to ¥1.535 quadrillion.
Domestic firms’ retained earnings climbed 3.7 percent from the previous year to ¥463.13 trillion, hitting a record for the seventh consecutive year.