Tokyo : Japanese businesses cut spending for a 12th quarter, signallling the export-led recovery has been slow to spread to domestic demand.
Capital spending excluding software fell 12.9 per cent in the three months ended March 31 from a year earlier, after sliding 18.5 per cent in the previous quarter, the Finance Ministry said yesterday in Tokyo.
Profit grew at a faster pace than sales, an indication that cost-cutting is driving a rebound in earnings, the ministry said.
Bank of Japan board member Miyako Suda said yesterday that the European sovereign debt c risis is clouding the economic outlook and may dissuade businesses and consumers from spending.
Wednesday's resignation of Prime Minister Yukio Hatoyama came amid signs the recovery is losing momentum.
Uncertainties
"Companies' efforts to cut costs are improving their profitability, but they aren't in a rush to increase spending given the uncertainties over the economic outlook," said Susumu Kato, chief economist at Credit Agricole CIB and CLSA in Tokyo. Investors shrugged off the report, with stocks rebounding after figures showed sales of US homes and cars rose.
The Nikkei 225 Stock Average climbed 2.9 per cent at 1.17pm in Tokyo, paring the year's losses to 6.3 per cent. The yen traded at 92.17 (Dh3.68) per dollar after weakening 1.3 per cent following Hatoyama's decision to quit.
Globally, "stock and currency markets are increasingly unstable, which could lead to a deterioration in corporate and household sentiment, hurting capital and consumer spending not only in Europe but Japan as well," central bank policy maker Suda said in a speech in Wakayama, western Japan.
The government will downgrade first-quarter gross domestic product figures based on yesterday's report, according to Credit Agricole's Kato.
He predicts revised GDP figures on June 10 will show the economy grew at an annual 4.2 per cent pace last quarter, slower than the 4.9 per cent reported last month.
The capital spending component likely fell 0.9 per cent from the previous quarter, compared with a 1 per cent increase in the preliminary report, he said.
Companies' sales rose 10.6 per cent, the first increase in nine quarters, the data showed. Profits surged 163.8 per cent, the biggest gain since the survey began in 1955.
Cautious approach
Bank of Japan policy board member Miyako Suda said she was focusing on downside risks to Japan's economy even as it recovers, warning that the market turmoil triggered by Europe's debt woes could hurt growth.
Suda also warned that expanding government spending could damage market trust and backfire as the country is already saddled with a huge public debt.
Suda offered few clues on the outlook for monetary policy, only saying that the BoJ will maintain very easy monetary policy in an effort to pull Japan out of deflation.
— Reuters
