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Japan business capex growth slows in Q4, points to economic headwinds

[TOKYO] Japanese corporate capital expenditures grew in October-December from a year earlier but the pace slowed from the prior quarter, casting doubt about strength of business investment seen as key to spurring growth in the world's third-largest economy.

The 2.8 per cent year-on-year increase in capital spending in the fourth quarter followed a 5.5 per cent annual gain in July-September, data by the Ministry of Finance showed on Monday.

Nonetheless, the data, which will be used for calculating revised gross domestic product (GDP) data due March 9, suggests little revision to a preliminary reading of 2.2 per cent annualised economic growth in the fourth quarter, analysts say. "Looking at today's data and preliminary GDP figures, capital spending appears to be stalling and it shows no signs of accelerating despite rising profits and share prices," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Sluggish demand is causing companies to take a wait-and-see stance. They will probably stick to this stance until the economy firms up in the coming fiscal year from April." Excluding spending on software, capital expenditure rose a seasonally-adjusted 0.6 per cent from the previous quarter, a second straight quarter of increases.

Preliminary GDP data released last month showed fourth-quarter economic growth sharply lagged expectations as household and corporate spending disappointed, underlining the challenge premier Shinzo Abe faces in reviving the economy.

Corporate spending on plant and equipment, along with wages growth, hold the key to the ultimate success of Mr Abe's policy recipe dubbed "Abenomics" aimed at generating a virtuous cycle of private-sector-led growth.

But companies have so far been slow to implement their robust capital spending plans as seen in the Bank of Japan's key tankan survey due to uncertainty over the economy's outlook.

Recent indicators including machinery orders and factory output show tentative signs of recovery in capital spending on the back of external demand led by the US economy.

Monday's data showed recurring profits at Japanese firms rose 11.6 per cent in the year to October-December to a record 18.0651 trillion yen (US$150.68 billion) as a weaker yen boosts profits at sectors such as transport machinery, electronics, information and communications.

Sales rose 2.4 per cent year-on-year in the same quarter.