TOKYO : Japanese companies' capital spending rose in the April-June quarter, the first increase since the start of the global pandemic and a sign of revived corporate activity even as a resurgence in COVID-19 cases hit the services sector.
Analysts said the figures will contribute to an upward revision of Japan's second quarter GDP, which grew at 1.3per cent according to a preliminary estimate as private consumption and business activities recovered from the impact of the pandemic.
Wednsesday's data offered a positive note for embattled Prime Minister Yoshihide Suga, who faces his ruling party's leadership race this month and looming general elections that must be held by late November.
Still, the rebound in world's third-largest economy has been much weaker than that of other advanced economies and Suga is likely to remain under pressure to deploy large fiscal stimulus to make up for a lack of private-sector spending. Suga is set to order his ruling party to back a new economic package this week, local media reported.
Ministry of Finance (MOF) data showed capital expenditure rose 5.3per cent in the second quarter from the same period last year when it fell 11.3per cent due to the coronavirus pandemic.
It was the first increase in five quarters and followed a 7.8per cent year-on-year decline in the January-March quarter.
The MOF data, which will be used to calculate revised gross domestic product (GDP) data due next Wednesday, showed manufacturers' business spending rose 4.0per cent from a year earlier, while that of service-sector firms grew 5.9per cent.
The data looked "solid across the board, both in manufacturing and non-manufacturing sectors," Takeshi Minami, chief economist at Norinchukin Research Institute, said.
Taro Saito, executive research fellow at NLI Research Institute said: "Recovery in corporate investments finally began."
On a seasonally-adjusted basis, capital expenditure gained 3.2per cent in April-June from the previous quarter, the MOF data showed.
Corporate recurring profits jumped 93.9per cent in the April-June period from a year earlier, while sales gained 10.4per cent.
For the whole of last fiscal year ended in March, Japanese firms raised the amount of internal reserves by 2per cent to a record 484 trillion yen (US$4.39 trillion), underscoring their tendency to hoard cash, while recurring profits fell 12per cent due to the pandemic, the MOF data showed.
Figures released on Tuesday showed the rapid spread of the Delta variant in Asia is disrupting supply chains and production of Japan's key sectors like car manufacturers.
(US$1 = 110.1900 yen)
(Reporting by Tetsushi Kajimoto and Kantaro Komiya; Editing by Sam Holmes and Richard Pullin)