Finance news

Japanese businesses cut spending for an 11th quarter even as their earnings rebounded, signaling a revival in exports remains insufficient to prompt investment that would spur the recovery.

Capital spending excluding software fell 18.5 percent in the three months ended Dec. 31 from a year earlier, the Finance Ministry said today in Tokyo. Sales declined and profits doubled.

Sony Corp. and Panasonic Corp. are among companies cutting costs to protect earnings even as demand from abroad picks up. A stronger yen is forcing exporters to invest overseas rather than at home, and deflation is discouraging spending by domestic service companies, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co.

“We’re seeing a clear contrast between the rapid recovery in profits and the weakness in capital spending,” Tokyo-based Miyazaki said. “The recovery’s spillover to capital spending has been particularly weak this time, even in comparison to the economic recoveries of the past.”

The yen traded at 88.34 per dollar at 3:12 p.m. in Tokyo after earlier touching 88.31, the highest since Dec. 11. Japan’s currency has gained more than 5 percent this year, eroding the value of exporters’ repatriated profits. The Nikkei 225 Stock Average fell 1.1 percent, extending its losses to 3.8 percent for the year.

Slower Growth

Based on today’s data, the Cabinet Office may revise fourth-quarter economic growth figures lower on March 11. Gross domestic product probably expanded at an annual 3.9 percent pace, slower than the 4.6 percent reported last month, according to the median forecast of 13 economists surveyed by Bloomberg News after today’s figures were released.

The capital spending component likely rose 0.3 percent from the previous quarter, compared with a 1 percent increase in the preliminary report, economists said.

“Capital spending may have hit bottom, but the strength of the rebound is still in question,” said Naoki Tsuchiyama, market economist at Mizuho Securities Co. in Tokyo, who estimates a GDP downgrade to 3.7 percent. “The economic recovery is largely dependent on government stimulus and companies are still cautious about the outlook for final demand.”

Companies’ sales slid 3.1 percent last quarter after tumbling 15.7 percent the previous three months, the ministry said. Profits surged 102.2 percent, the first increase in 10 quarters and the second biggest advance since the survey began in 1955.

Weak Link

Business spending remains the weak link of a recovery that’s being driven by exports and showing signs of improvement in the labor market. About a third of factory capacity is sitting idle in the wake of the nation’s worst postwar recession, discouraging companies from buying equipment free credit score.

“Capital spending may start growing later this fiscal year, but the pace of the recovery will be very moderate,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. “Companies still have excess capacity, so they will try to utilize existing facilities rather than building new plants.”

Sony last month narrowed its forecast for a net loss, saying it is approaching its target of trimming 330 billion yen in costs by eliminating jobs and shutting factories. Capital spending for this fiscal year will probably total 220 billion yen, 34 percent less than a year earlier and lower than the 250 billion yen estimated in October, Sony said on Feb. 4.

Raising Forecasts

Panasonic last month raised its operating profit forecast, as cuts in fixed and material costs lead to a recovery in earnings from consumer electronics and appliances. Capital investment for the nine months ended Dec. 31 stood at 275.6 billion yen, 22 percent less than the same period a year earlier, according to a company statement.

Slumping prices also are squeezing profit margins. Consumer prices excluding food and energy dropped 1.2 percent in January, matching December’s record decline, the government said last week.

Finance Minister Naoto Kan renewed calls on the Bank of Japan to help arrest deflation this week, saying he hopes prices will rise this year.

The government has been encouraging spending by providing incentives to buy cars and consumer electronics. Those initiatives are becoming less effective, said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.

“Not only is capital investment slack but the demand boost from policies to stimulate replacement purchase of energy-saving electrical goods and environment-friendly autos is fading,” Yamakawa said.

Asia Rebound

Still, some companies are benefiting from rebounding demand in Asia, particularly China, the world’s fastest-growing major economy and Japan’s biggest overseas market.

Hitachi Construction Machinery Co., Asia’s second-largest excavator maker, may double sales in China this quarter, beating its forecast as the nation’s spending on railroads and mining fuels demand, Chief Executive Officer Michijiro Kikawa said in an interview on March 1.

Japanese manufacturers increased output in January at the fastest pace since May and exports climbed the most in almost 30 years, government reports showed last month.

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