Japan’s Q1 business capital expenditure rises 3%, led by manufacturers

Businessmen wearing protective masks walk on a pedestrian bridge, amid the spread of the coronavirus disease (COVID-19), in a business district in Tokyo, Japan, June 24, 2020. REUTERS/Issei Kato/File Photo

TOKYO, June 1 (Reuters) – Japanese companies increased capital spending for the fourth consecutive quarter in January-March, underscoring the resilience of manufacturer-led business investment despite the uncertainty surrounding the COVID pandemic and the war in Ukraine.

Firm corporate spending could raise hopes among policymakers who are counting on Japan’s cash-rich companies to splurge on plant and equipment investment to support a domestic demand-led economic recovery .

Capital expenditure in the first quarter of this year rose 3.0% from the same period last year, following a 4.3% increase in the fourth quarter, according to data from the Ministry of Finance (MOF). published on Wednesday. The gains were led by manufacturers of transportation equipment due to investments in new technologies, and metal producers faced with the need to increase their production capacity.

The reading will be used to help calculate revised gross domestic product (GDP) figures due next Wednesday. Some economists expect a downward revision.

“Capital spending remained firm, particularly in manufacturing industries driven by strong demand, but the services sector was reeling from the pandemic. raises GDP,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“As Japanese people get used to the idea of ​​living with the coronavirus and border controls ease, service sector activity and inbound tourism will pick up, contributing to a gradual recovery in capital spending and the wider economy in the future.”

The world’s No.3 economy contracted 1.0% in the first quarter of this year, preliminary data shows, as the coronavirus dampens, supply disruptions and rising commodity costs hit consumption . The economy has recorded two quarters of contraction over the past year, underscoring a fragile recovery.

Many economists expect the economy to return to growth in the coming quarters, although prospects for a V-shaped recovery are fading given the Ukraine crisis and the risk of a resurgence of infections. to coronavirus.

By sector, MOF data showed that manufacturers’ business spending improved 5.9% from a year earlier, reaching levels close to pre-pandemic levels, while that of non- manufacturers rose 1.6%, still below pre-COVID levels.

Recurring corporate profits rose 13.7% in January-March from a year earlier to 22.8 trillion yen ($177 billion) – a record amount for a first quarter – while sales rose. increased by 7.9%.

“Sales and profits have increased, but weakness is seen in the automotive and electrical machinery sectors due to supply restrictions and soaring raw material prices,” an official with the ministry said. Finance.

“The recovery is uneven and depends on the size and type of business.”

In the quarter, capital spending rose 0.3% in January-March from the previous three months on a seasonally adjusted basis, according to MOF data.

($1 = 129.1300 yen)

Reporting by Tetsushi Kajimoto; Editing by Kim Coghill and Kenneth Maxwell

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