Japan’s businesses increased spending for a fourth straight quarter in another sign of the country’s recovery from the pandemic, an outcome that supports earlier data showing robust investment appetite among firms.
(Bloomberg) — Japan’s businesses increased spending for a fourth straight quarter in another sign of the country’s recovery from the pandemic, an outcome that supports earlier data showing robust investment appetite among firms.
Capital expenditure excluding software rose 2.7% in the three months through March from the previous quarter, the finance ministry reported Thursday. The reading was stronger than the 0.9% increase shown earlier by the cabinet office in its preliminary gross domestic product figures.
Thursday’s data will be incorporated into revised gross domestic product figures due June 8. The initial reading showed that the Japanese economy grew more than expected in the January to March period mainly driven by resilient private and business consumption, following a technical recession at the end of last year.
The robust capital expenditure may help push the preliminary figure further upward, providing a clearer indication of Japan’s recovery, which has been slower compared to other advanced economies.
“There is no doubt that business spending is strong,” said Saisuke Sakai, senior economist at Mizuho Research & Technologies. “Capital investment in the non-manufacturing sector is particularly resilient, as service consumption is picking up domestically, and inbound demand will start to recover in earnest.”
Thursday’s result comes after the Bank of Japan’s latest Tankan survey, which also indicated that companies were keen to invest. Their appetite has been sustained in part by labor shortages triggered by this year’s further relaxation of virus-related regulations and recovering inbound tourism demand.
The Tankan report indicated that firms are facing the worst manpower constraints in about four years, likely motivating them to accelerate digitalization efforts.
Manufacturers appear to be adding to investment, as they gradually restore their production schedules with an easing of supply chain disruptions.
“The numbers were stronger than expected,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “The manufacturing sector grew quite well, particularly the automobile and processing industries.”
She expected capital expenditure figures to be revised upward in next week’s data release, although she warned that updated inventory data may be weaker.
Japan’s current recovery trajectory may support Prime Minister Fumio Kishida, who is said to be mulling an early election. While his approval rating has been improving over the past two months due to relatively solid economic figures and an action-packed Group of Seven summit, a recent scandal involving his son may make the prospect of an early election less attractive.
Further ahead, several risks remain for Japan’s businesses. The impact of a global economic slowdown triggered by interest rate hikes around the world has been hitting production in the manufacturing sector, as suggested by the latest factory output data.
The recent turmoil in the US financial sector, including the debt-ceiling problem and bank failures, have also caused disruption and confusion in the global markets, and the effects may remain for some time.
China’s growth trajectory out of the pandemic has also been weaker than initially expected. Japan’s exports to its neighboring country have been falling for five months, indicating China’s recovery is losing momentum after an initial burst in consumer and business activity earlier in the year.
(Updates with more details from the report, economist comments)
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