Japan saw capital spending rise at fastest pace in Q3

4 September, 2018 12:00 AM printer

TOKYO: Capital spending by Japanese companies rose at the fastest pace in more than a decade in the April-June quarter, government data showed Monday, adding to evidence that the economy has resumed growth after a temporary slowdown.

Investment by all nonfinancial sectors for purposes such as building factories and adding equipment increased by 12.8 percent from a year earlier, the Finance Ministry said, highlighting the seventh straight quarter of growth and the fastest since January-March 2007, report agencies.

Such spending, which includes software outlays, came to ¥10.66 trillion ($96 billion) as chip-makers and automakers ramped up production capacity. Electric utilities also contributed by adding safety measures at nuclear power plants.

“The economy has been in an expansionary phase for a while now and companies are feeling short on both equipment and workers,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“There’s also mounting pressure from shareholders to make good use of retained earnings, rather than just put them away for safekeeping like in the past.”

Railway firms contributed to the trend by investing in real estate development around train stations, while electric utilities added safety measures at nuclear power plants, a ministry official told a news briefing.

On a quarter-on-quarter basis, capital expenditures excluding software rose 6.9 percent. The figures will be factored into revised gross domestic product data for the second quarter of 2018 to be released by the Cabinet Office on Sept. 10.

Preliminary GDP data showed the world’s third-largest economy grew an annualized real 1.9 percent in the quarter, rebounding from a slight contraction in January-March.

Minami said he expects “a significant upgrade” to the GDP growth rate, estimating it will be revised to an annualized real 2.9 percent.

Pretax profits at companies covered in the Finance Ministry’s survey rose 17.9 percent from a year earlier to ¥26.40 trillion — a record high amid strong demand for chip-manufacturing equipment from the United States and China. Sales climbed 5.1 percent to ¥344.61 trillion.