Japan's Capital Spending Increases More Than Forecast
By Lily Nonomiya
Sept. 4 (Bloomberg) -- Japanese companies increased spending at the fastest pace in almost five years in the second quarter, drawing confidence from the nation's longest postwar expansion to upgrade machinery and refurbish stores.
Investment rose 16.6 percent in the three months ended June 30, the Ministry of Finance said in a report today, above the 14.5 percent median forecast of 7 economists surveyed by Bloomberg News. Profits rose 10.1 percent from a year earlier, more than double the growth in the first quarter.
Bond yields and stocks climbed as the report helped alleviate concern that weaker consumer spending would restrain growth in the world's second-largest economy. Elpida Memory Inc., Japan's biggest maker of memory chips, last week announced plans to invest 306 billion yen ($2.6 billion) by March 2009 to almost double capacity at its Hiroshima factory in western Japan.
``The strong capital expenditure numbers relieve some of our concern about weak numbers on the household side,'' said Frances Cheung, an economist at Standard Chartered Bank in Hong Kong. ``With this much momentum in the business sector, there's no way the benefit won't be passed on to the household sector.''
The 13th consecutive quarterly gain in spending was the biggest increase since the ministry added software to the survey in the third quarter of 2001. Expenditure excluding software rose 18.4 percent, the fastest pace since 1990.
Takashimaya, Suzuki
The yield on the benchmark 10-year bond climbed 3.5 basis points to 1.675 percent at 3:50 p.m. in Tokyo. A basis point is 0.01 percentage point. The yen rose to 116.51 against the dollar from 116.94 before the figures were released. The Topix stock index climbed 1 percent. Sumitomo Heavy Industries Ltd., a shipbuilder and heavy machinery maker, climbed 2 percent.
Non-manufacturers increased spending by 17.9 percent last quarter, the fastest since the government started tracking the figures in 2001, today's report said. Manufacturers increased spending by 14.1 percent.
Takashimaya Co., Japan's largest department store operator, is spending 33 billion yen to revamp department stores in Tokyo and Osaka. Suzuki Motor Corp., Japan's largest minicar maker, said last month it will spend 60 billion yen to build its first domestic factory since 1992.
Yields on Japan's 10-year bonds tumbled more than a quarter of a percentage point in August, the biggest monthly drop in two years, after reports showed factory production fell and consumer prices and gross domestic product climbed less than forecast.
Consumer Spending
A series of government reports last week also suggested that consumer spending is weak. Household spending slipped for a seventh consecutive month, wages fell 0.1 percent and retail sales declined 1.7 from June.
Today's report will be used to revise the capital spending and inventory components of second-quarter gross domestic product scheduled for release on Sept. 11. Japan's economic growth slowed to an annual 0.8 percent pace in three months ended June 30 from 2.7 percent the previous quarter, according to the government's preliminary figures.
The numbers ``confirm that capital spending is on solid footing and will probably result in upward revision of the GDP report,'' said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo. ``It is good to see that profit growth is accelerating, which will help support spending.''
GDP Revision
Growth in some of Japan's biggest markets has been weakening. The U.S. economy, destination for more than a fifth of the Japan's exports, slowed to an annual 2.9 percent pace from a 5.6 percent pace in the first quarter. The economy in South Korea, Japan's third-largest export destination, grew 0.8 percent, the smallest gain in a year.
The preliminary GDP report on Aug. 11 showed spending by companies rose 3.8 percent last quarter and private inventory investment shaved 0.2 percentage point from Japan's growth. The GDP's inventory component is influenced by today's survey because much of the data to measure corporate inventories is unavailable when the preliminary figures are released.
Companies increased inventories at a faster pace than the same quarter a year earlier, today's report showed. Inventory rose by 1.36 trillion yen in the second quarter, compared with a 65 billion increase in the same quarter of last year.
Capital spending, which together with consumer spending was the main driver of growth in 2005, will likely keep growing. Machinery orders, which point to capital spending in three to six months, surged at the fastest pace since 1989 in the second quarter, a government report last month showed.
Japan's economic expansion will become the longest since World War II if it continues through November, surpassing the so-called Izanagi boom of 1965-1970, a 57-month period of growth named after a Japanese god.
bloomberg.com |
