Japanese capital spending growth surged in Q4, supply disruptions complicate outlook

  • Q4 investments +4.3% y/y, seasonally adjusted +3.4% q/q
  • Industrial investments +5.1% y/y, non-industrial +3.8%
  • Q4 ordinary corporate profit +24.7% y/y, sales +5.7% y/y

TOKYO, March 2 (Reuters) – Japanese companies increased spending on plant and equipment for the third straight quarter in October-December as business confidence was boosted by falling coronavirus cases and helped boost broader economic activity.

A strong recovery in business spending should ease concerns among policymakers who are under pressure to support the country’s economic recovery as the Ukraine crisis threatens to hurt the global economy.

Data from the Ministry of Finance (MOF) released on Wednesday showed that capital expenditure in the last quarter of last year increased by 4.3% compared to the same period last year, marking the third consecutive quarter of year-over-year gains.

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That was stronger than a 1.2% year-over-year increase in the third quarter.

“As general sentiment improves, it remains to be seen whether capital spending will gradually put in place a full recovery,” said Takumi Tsunoda, senior economist at the Shinkin Central Bank Research Institute.

“Capital spending hasn’t been bad overall and companies have lagged somewhat behind in their investments. But they are facing some pressure from supply constraints.”

The reading, which will be used to calculate the revised gross domestic product (GDP) expected next Wednesday, was a little stronger than expected, Tsunoda said, adding that it could lead to a slight increase in the capital expenditure component in GDP.

The data comes after factory output recorded a surprisingly large decline in January as the auto sector faced pandemic-induced production suspensions and parts supply shortages. Read more

After shrinking in the July-September period, the world’s third-largest economy returned to growth in the last three months of last year thanks to a rebound in consumption, with annualized growth of 5.4% over a preliminary basis. Read more

But that was before the Ukraine crisis erupted and the Omicron variant of the coronavirus led to a record rise in home infections.

Data on Wednesday showed that manufacturing business spending improved 5.1% from a year earlier, while that of service-sector businesses rose 3.8%.

Capital spending rose 3.4% in October-December from the previous quarter on a seasonally adjusted basis, according to MOF data.

Recurring corporate profits rose 24.7% in October-December from a year earlier, while sales rose 5.7%.

The survey showed continued weakness in recurring profits and sales in the automotive sector due to supply constraints, a government official said.

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Reporting by Daniel Leussink Editing by Shri Navaratnam

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