Japan Q3 capex points to upward revision to Q3 GDP, may dodge recession

[TOKYO] Japanese capital expenditure rose at the fastest pace in more than eight years in July-September from a year earlier, in an encouraging sign that economic performance over the summer was not as weak as initially thought.

The data suggest that revised gross domestic product (GDP) on Dec 8 may show that Japan narrowly avoided a technical recession, easing some of the pessimism surrounding the government's efforts to energise domestic demand.

A preliminary estimate had showed the economy contracted an annualised 0.8 per cent in July-September as capital expenditure and inventories slumped.

The 11.2 per cent increase in capital expenditure followed a 5.6 per cent annual gain in April-June, data by the Ministry of Finance showed on Tuesday. That marked the biggest increase since the first quarter of 2007.

Accelerating capital expenditure is a welcome sign for the government as it launches a renewed effort to get companies to increase domestic investment to create more jobs, raise wages and increase worker productivity. "We still need to revise our estimates, but my initial impression is GDP could be revised to show slight growth," said Norio Miyagawa, senior economist at Mizuho Securities. "With capital expenditure numbers as strong as this, there's no need for policymakers to change their scenario for the economy." Excluding spending on software, capital expenditure rose a seasonally-adjusted 5.4 per cent from the previous quarter, after falling 2.7 per cent in April-June, finance ministry data showed.

Compared to the same period a year earlier, corporate profits rose 9.0 per cent, slower than a 23.8 per cent annual increase in the previous quarter.

Japan's economy contracted in the second and third quarters, which meets the definition of a technical recession.

Some economists remain cautious on the outlook, arguing that companies could easily curb capital expenditure as China's slowdown hits export demand.

Japanese policymakers are offering companies corporate tax cuts in exchange for assurances that profitable firms will increase capital expenditure, but it remains uncertain whether this trade-off will produce the results the government is hoping for.

REUTERS