Japan corporate capex, profits sag as COVID impact bites

TOKYO (Reuters) – Japanese companies cut spending on plant and equipment in July-September for a second straight quarter as the coronavirus hit private sector demand, keeping policymakers under pressure to deploy large stimulus to respond to the pandemic.

FILE PHOTO: An employee wearing a protective face mask and face guard works on the automobile assembly line as the maker ramps up car production with new security and health measures as a step to resume full operations, during the outbreak of the coronavirus disease (COVID-19), at Kawasaki factory of Mitsubishi Fuso Truck and Bus Corp., owned by Germany-based Daimler AG, in Kawasaki, south of Tokyo, Japan May 18, 2020. REUTERS/Issei Kato/File Photo

Weakening capital spending is likely to worry the government, which is counting on private demand to help the world’s third-largest economy recover from the deepest postwar slump caused by the health crisis.

Ministry of Finance data out on Tuesday showed Japanese firms’ capital expenditure fell 10.6% in July-September from the same period in the year before, following a decline of 11.3% in the previous quarter.

On the quarter, seasonally-adjusted capital spending fell 1.2%, less than the prior quarter’s 7.1% drop and smaller than the 3.4% capex component in preliminary GDP readings for the quarter.

Corporate ordinary profits fell 28.4% in July-September from the same period a year before, after nearly halving in the April-June quarter year-on-year. It was the sixth straight quarter of decline.

While the contraction points to challenging conditions, some analysts say the capex data suggests upward revision to third-quarter gross domestic product (GDP) data due 2350 GMT Dec. 7, after preliminary estimates showed the economy expanded an annualised 21.4%.

Separate data painted a mixed picture on Japan’s job market. The jobless rate rose to 3.1% in October from the prior month’s 3.0%, while the job availability rose to 1.04 from the prior month’s 1.03, up for the first time in 1-1/2 years.

“This attests to the global manufacturing-centred economic recovery,” said Hiroaki Muto, an assistant general manager at Sumitomo Life Insurance Co.

“Attention should be paid to the impact of a service-sector slowdown over the winter going into the start of next year.”

To cope with the virus pain, ruling party lawmakers have sought an extra budget of 20 trillion-to-30 trillion yen ($190 billion-$290 billion) to fund new stimulus ordered by premier Yoshihide Suga.

“Steps are needed to both make up for the loss of demand as well as to create future-oriented investment in areas like digital transformation and green society to boost capital expenditure,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

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