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2ND LD: Japan capital spending up 10.2%, biggest rise in 7 years.

TOKYO, June 3 Kyodo


Capital spending by Japanese companies jumped 10.2 percent in the January-March quarter from a year earlier on an all-industry basis, the biggest rise in seven years, according to a Finance Ministry survey released Thursday.

The rise was the biggest since the 13.0 percent growth in the January-March quarter of 1997 and underlined that the nation's export-driven economic recovery has broadened to domestic demand along with recent upticks in personal consumption.

It was the fourth straight quarterly increase for capital spending, following the 5.1 percent rise the previous quarter, backed by brisk spending by manufacturers of semiconductors, liquid crystal displays and other digital-related products, according to the quarterly survey.

Private-sector economists said the upbeat findings are likely to push up revised data for Japan's gross domestic product for the January-March quarter, which will be released next Wednesday.

''The strong capital spending for the reporting quarter showed that domestic demand has remained firm,'' said Masaaki Kanno, chief economist at J.P. Morgan Securities Asia Pte. Ltd. ''It is expected that the data will work positively, though slightly, when the government revises GDP data next week.''

The Cabinet Office said in a preliminary report in May that Japan's GDP grew 1.4 percent, or an annualized 5.6 percent, in real terms in the January-March period, up for the eighth straight quarter on robust exports and pickups in private consumption.

The growth rate had already topped the average market projection of 1.0 percent or an annualized 3.9 percent.

Kanno said small and midsize companies have followed major companies in expanding capital spending, citing a 25.0 percent jump by companies capitalized at 10 million yen to 100 million yen and a 16.8 percent hike by companies capitalized at 100 million yen to 1 billon yen.

This compared with a 3.6 percent rise by companies capitalized at 1 billion yen or more.

According to the survey, manufacturers spent 19.7 percent more on plants and equipment than they did a year earlier, marking the fourth straight quarterly increase and the highest since the January-March period in 2001.

The strong reading was led by a 101.5 percent climb by general machinery and a 44.8 percent rise by electric machinery.

Nonmanufacturers spent 6.3 percent more, up for two consecutive quarters, led by a 22.2 percent rise by wholesalers and retailers and a 5.6 percent increase by service providers.

Meanwhile, the combined corporate pretax profits for the January-March period increased 24.6 percent from a year earlier for the seventh straight quarterly expansion.

Manufacturers' pretax profits rose 25.1 percent, up for the seventh straight quarter, while those of nonmanufacturers were up 24.3 percent, up for the fourth consecutive quarter.

Analysts said the strong growth in pretax profits underlined that nonmanufacturers and small companies have enjoyed the fruits of the recovery in the world's second-largest economy, which many think tanks expect to continue until next fiscal year through March 2006.

But some cite concern over recent spikes in crude oil prices and possible interest-rate hikes in China and the United States as risk factors for the Japanese economy.

''With profits and sales rising, companies have started taking forward-looking moves, such as increasing capital spending and cutting debts,'' said J.P. Morgan's Kanno. ''We expect companies to finish cleaning up their balance sheets in one to two years.''

Combined sales increased 2.4 percent for the fourth straight quarter. Sales by manufacturers climbed 4.3 percent, up for the sixth straight quarter, while those by nonmanufacturers rose 1.5 percent, up for the fourth quarter in a row.

The Finance Ministry polled 23,459 companies selected at random from among those capitalized at 10 million yen or more, of which 79.6 percent responded. It excluded financial institutions.
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Publication:Japan Weekly Monitor
Date:Jun 7, 2004
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