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New data raises concerns over Japan's performance

Official data yesterday showed a sharp drop in growth of Japanese corporate capital spending in the October-December quarter, raising concerns that an economic contraction last year would turn out to be worse than thought.

A quarterly survey by the Ministry of Finance found combined corporate capital spending fell by a seasonally adjusted 2.8 percent in the last quarter of last year from the previous three months, the first decline in five quarters.

It also showed combined parent pretax profits of non-financial companies rose only 17.6 percent in the last quarter from a year earlier, just half the increases of 37.8 percent in July-September and 34.3 percent in April-June.

The findings prompted expectations that the Cabinet Office, when it next Monday releases a revised estimate of GDP reflecting the survey outcome, will downgrade figures for October-December.

Last month the government said the world's second-largest economy contracted 0.1 percent in October-December, or at an annualized rate of 0.5 percent, for a third consecutive quarterly decline to show the country was in recession for most of last year.

Some economists expect the headline figure to be revised to a 0.2 percent contraction while others say it may stay at 0.1 percent.

"The ministry survey confirmed clearly the downturn of corporate activity which had driven overall growth in early 2004," said Taro Saito, an economist at NLI Research Institute.

Year-on-year, the ministry survey showed that corporate capital spending rose 3.5 percent in the October-December quarter, much slower than the gains of 14.4 percent in July-September and 10.7 percent in April-June.

"Given the fact that corporate profits in Japan are now exposed to a greater downside risk ahead, the growth in capital investment may slow further as well," said Saito.

Major high-tech companies have recently issued profit warnings for the year to March, the result of prolonged inventory adjustment in the information technology sector, rising procurement costs and the fading benefits of restructuring.

The ministry surveyed 25,321 companies with capital exceeding ¥10 million (US$95,000) and received effective replies from 20,046 companies.
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