The firmness in business spending could give hope to policymakers who are counting on Japan’s cash-rich companies to invest in factories and equipment to support an economic recovery based on domestic demand.
Investment spending 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) publish on Wednesday. The gains were led by manufacturers of transportation equipment due to investments in new technologies, and by 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 the manufacturing sector, on the back of strong demand, but the services sector suffered from the pandemic. GDP growth,” said Takeshi Minami, chief economist at the 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, supporting the gradual recovery of spending. investment and the economy at large.”
The world’s No.3 economy contracted 1.0% in the first quarter of this year, preliminary data shows, as coronavirus controls, supply disruptions and rising commodity costs hit the consumption. The economy recorded two quarters of contraction last year, underlining 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 due to the Ukraine crisis and the risk of a resurgence of coronavirus infections.
By sector, MOF data showed that manufacturing trade spending improved 5.9% from the previous year, almost reaching pre-pandemic levels, while non-manufacturing grew by 1. 6%, still below levels seen before COVID.
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 increased by 7.9%.
“Sales and profits have increased, but there is weakness in the automotive and electrical machinery sectors due to supply restrictions and soaring commodity prices,” an MOF official said. .
“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)