Businessmen wearing protective face masks walk on a pedestrian bridge, amid the spread of the coronavirus disease (COVID-19), in a business district in Tokyo, Japan June 24, 2020.
Businessmen wearing protective face masks walk on a pedestrian bridge, amid the spread of the coronavirus disease (COVID-19), in a business district in Tokyo, Japan June 24, 2020. Reuters / Issei Kato

Japanese firms raised capital spending for a fourth straight quarter from January to March, underscoring the resilience of business investment led by manufacturers despite uncertainty over the COVID-19 pandemic and the war in Ukraine.

Firm business expenditure could raise hopes for policymakers counting on cash-rich Japanese corporations to splurge on investment in plants and equipment to underpin a domestic demand-led economic recovery.

Capital expenditure in the year's first quarter rose 3.0% from the corresponding period last year, following an increase of 4.3% in the fourth quarter, finance ministry data showed on Wednesday.

Gains were led by manufacturers of transport equipment due to investment in new technology, and metals producers facing the need to boost output capacity.

The figure will feed into revised gross domestic product (GDP) numbers due next Wednesday. Economists were divided on revised GDP forecasts after the capex data, with their forecasts ranging from a 0.5% annualised contraction to a 1.7% slump.

last month, preliminary data showed the world's No.3 economy shrank 1.0% annualised in the first quarter as coronavirus curbs, supply disruptions and rising raw material costs hit consumption. The economy recorded two quarters of contraction in the past year, underscoring a fragile recovery.

Many economists expect the economy to return to growth in the coming quarters, although prospects of a V-shaped recovery are fading on the Ukraine crisis and a risk of coronavirus resurgence.

"Capital spending remained firm, particularly among manufactures led by solid demand, but the service sector was reeling from the pandemic. As such it was not strong enough to bring upward revision to GDP," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Minami expected revised GDP data to show a slight downward revision to a 1.2% contraction.

"As the Japanese get used to the idea of living with coronavirus and border controls ease, service sector activity and inbound tourism will pick up, helping gradual recovery of capital spending and the broader economy going forward."

By sector, the finance ministry data showed manufacturers' business spending improved 5.9% from a year earlier, reaching near pre-pandemic levels, while that of non-manufacturers advanced 1.6%, still below levels seen before COVID.

Corporate recurring profits rose 13.7% in January-March from a year earlier to 22.8 trillion yen ($177 billion), for a record first-quarter figure, while sales were up 7.9%.

"Both sales and profits have increased, but weakness is seen in auto and electric machinery sectors due to supply restrictions and surging raw materials prices," a ministry official said.

"The recovery is uneven and depends on the size and the type of business."

On the quarter, capital expenditure rose 0.3% in January-March from the previous three months on a seasonally-adjusted basis, the ministry data showed.

($1=129.1300 yen)