Japan firms slash biz investment in Q3

3 March, 2021 12:00 AM printer

TOKYO: Firms in Japan slashed spending on plant and equipment for the third straight quarter in October-December as manufacturers cut costs, casting doubt on the strength of the country’s recovery as the COVID-19 pandemic hit private demand.

Weakness in capital expenditure is likely to worry policymakers counting on private-sector investment to help the world’s third-largest economy decisively shake off the health crisis, report agencies.

Separate data painted a more optimistic picture of the nation’s job market in January.

Capital spending fell 4.8% in October-December compared with the same period a year earlier, data from the Finance Ministry showed Tuesday, posting a third straight quarter of declines following a 10.6% drop in July-September.

“Manufacturers are clearly cutting costs,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“As they’re seeing a recovery on the back of increased China and U.S.-bound exports, they’re firmly securing profits — but on the other hand they’re making quite an effort to reduce costs,” he added.

Business expenditure shrank 0.3% quarter-on-quarter on a seasonally adjusted basis, the data showed, with manufacturers slashing investments, including on software, at a faster pace and for the third straight quarter.

Analysts said the capex data suggested a downward revision to fourth-quarter gross domestic product (GDP) data due March 9.

A preliminary estimate released last month showed Japan’s economy expanded an annualized 12.7% in the last quarter.

Before the health crisis hit, capital spending had been a bright spot in the nation’s export-reliant economy, driven by investment in automation and the high-tech sector as firms sought to cope with labor shortages in its graying society.

Ordinary corporate profits dropped 0.7% in October-December compared with the same period a year before, extending declines to their seventh straight quarter.

While manufacturers posted the first increase in ordinary profits in 10 quarters year-on-year, their business spending fell 8.5% compared to the same period a year earlier.

Service-sector spending shed 2.6% year-on-year, following the third quarter’s 10.8% decrease, according to Tuesday’s survey, which was conducted among firms with at least ¥10 million in capital.

Sales dropped 4.5% year-on-year in October-December, down for the 6th straight quarter and slowing further from the previous period’s 11.5% decline.

The jobless rate was unchanged at 2.9% in January from the previous month. Job availability climbed to 1.10 from the prior month’s revised 1.05, hitting its highest since June last year when the ratio stood at 1.12, labor ministry data showed.

“New job offers should rebound soon and lead to a further pickup in employment as the economy resumes its recovery,” said Tom Learmouth, Japan economist at Capital Economics.