Japan’s businesses continued to increase spending for five straight quarters despite headwinds including a global economic slowdown, an outcome that may nudge up last quarter’s economic growth figures.
(Bloomberg) — Japan’s businesses continued to increase spending for five straight quarters despite headwinds including a global economic slowdown, an outcome that may nudge up last quarter’s economic growth figures.
Capital expenditure excluding software rose 0.3% in the three months through December from the previous quarter, the finance ministry reported Thursday. Preliminary gross domestic product figures from the cabinet office had shown firms cutting spending by 0.5% in the same period.
The data showed a divide by sector, with manufacturers increasing spending by 1.1%, while service-sector firms slightly cut their expenditures.
While the latest data suggests corporate spending didn’t weigh on last quarter’s growth as previously thought, various setbacks to the economy remain. Profits compared to the year before fell for the first time since the end of 2020, and sales were also weaker than expected. Those developments don’t bode well for future corporate spending plans.
“Capital investment continues to rise, but it’s not gaining much momentum,” said economist Yoshimasa Maruyama at SMBC Nikko Securities. “Non-manufacturers seem to be lacking strength while they should be doing better as society learns to live with Covid.”
While manufacturers showed some resilience, other factors indicated the country still has a long way off before a full recovery. Thursday’s data will be incorporated into revised gross domestic product figures due March 9.
“What’s notable from today’s data is the first decline in profits in a while,” said Taro Saito, head of economic research at NLI Research Institute. “With the level of profits still high, we don’t have to worry too much about wage increases this year but if this continues, it would cool momentum for sustainable wage growth. That would affect the Bank of Japan’s outlook for achieving its stable inflation goal.”
Japan faced a number of setbacks during the last three months of 2022, including the global slowdown, whose effects have gradually become apparent. Other central banks have aggressively raised interest rates, worsening the economic climate for Japan’s business partners.
China’s sudden turnaround in its virus control measures resulted in a sharp resurgence of cases at the end of last year. Exports to China have sunk for two consecutive months since December.
Another headache for the Japanese economy was the falling yen, which inflated import costs.
Read more: Japan Stepped Into Forex Market Twice in October to Prop Up Yen
The historic yen slide led to the government intervening in the foreign exchange market twice in October to prop up the currency. Although the yen gained to some extent through November and December, the impact of the embattled yen still lingers through inflated import costs.
The various factors combined could mean that the central bank may remain cautious about pivoting away from supporting the economy.
“Japan isn’t at a stage to tighten its monetary policy,” said SMBC Nikko’s Maruyama. “I think it’s appropriate to keep the easing policy framework largely intact.”
–With assistance from Toru Fujioka.
(Updates with additional details from report, economist comments)
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