Japan’s capital spending drags on as companies tighten their purse strings | Investment News

TOKYO (Reuters) – Japanese companies cut spending on plant and equipment for the fourth straight quarter in January-March as the economy struggles to shake off the drag of the coronavirus pandemic.

Weak business spending should worry policymakers who hope that strong domestic demand will help make the country’s economic recovery more sustainable.

Data from the Ministry of Finance (MOF) released on Tuesday showed capital spending in the first quarter fell 7.8% from the same period last year, led by weaker investment in transport equipment , electrical machinery and real estate.

This is the fourth consecutive quarter of annual decline in capital spending, following a 4.8% contraction in the last quarter of last year.

“The number gives a weak impression, but GDP was already weak to begin with,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

A separate private sector survey showed on Tuesday that Japanese factory activity expanded in May, largely on the back of strong external demand, but at a slower pace.

The world’s third-largest economy fell back into decline in the first quarter as the slow rollout of vaccines and repeated emergency measures to halt the resurgence of infections hurt domestic demand.

Investment data from the Ministry of Finance, which will be used to update gross domestic product (GDP) figures for the first quarter due on June 8, should not have a major impact on the growth estimate. , analysts said.

Some companies have postponed unnecessary investments in favor of conserving cash, a finance ministry official said.

“Non-manufacturers have likely been building up cash rather than committing to spending on bolstering security, pushing back their capital spending plans beyond the end of the fiscal year,” Chief Economist Takeshi Minami said. at the Norinchukin Research Institute.

After rebounding from last year’s recession, driven by a strong recovery in exports, some analysts fear that Japan’s economy could slip back into recession in the current quarter due to the extension of coronavirus measures. .

A preliminary estimate showed Japan’s economy contracted 5.1% year-on-year in the first quarter as households cut spending and export growth slowed sharply.

The latest MOF survey showed that manufacturers’ business spending fell 6.4% from a year earlier, posting a smaller contraction than the 8.5% drop in the previous quarter.

That of companies in the service sector fell by 8.5% over one year, against a drop of 2.6% in the previous quarter.

Weaker-than-expected industrial production and retail sales figures on Monday showed that the economic recovery remained dependent on foreign demand.

Capital spending fell 0.4% in January-March from the previous quarter on a seasonally adjusted basis, according to MOF data.

Recurring corporate profits rose 26.0% in January-March from a year earlier, up for the first time in eight quarters, while sales fell for a seventh consecutive quarter, down 3 .0%.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

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