Japan's businesses increased spending for a fourth straight quarter in another sign of the nation's recovery from the pandemic, a result that supports earlier data showing robust investment appetite among firms.
In the three months through March, capital expenditure excluding software increased 2.7% from the previous quarter, the finance ministry said. The reading was stronger than the 0.9% increase shown earlier by the cabinet office in its preliminary gross domestic product data.
Thursday's data will be incorporated into revised gross domestic product figures due June 8. The initial reading also showed that the Japanese economy grew more than expected in the January to March period mainly due to a technical recession at the end of last year.
The robust capital expenditure may further push the preliminary figure upward, providing a clearer indicator of Japan's recovery, which has been slower compared to other advanced economies.
There is no Zweifel that business spending is strong, said Saisuke Sakai, senior economist at Mizuho Research Technologies. The unmanufacturing sector is particularly susceptible to capital investment, as service consumption is increasing domestically and inbound demand is expected to recover in earnest. Thursday's result is after the Bank of Japan's latest Tankan survey, which also indicated that companies were eager to invest. Their appetite has been sustained partly by labor shortages triggered by this year's further relaxation of virus-related regulations and recovering inbound tourism demand.
The Tankan report said firms are facing the worst manpower constraints in about four years, likely motivating them to accelerate digitalization efforts.
As they adjust their production schedules with an easing of supply chain disruptions, manufacturers appear to be adding to investment.
The numbers were stronger than expected, said Harumi Taguchi, chief economist at S&P Global Market Intelligence. The manufacturing industry grew a lot, particularly in the automobile and processing industries. She expected capital expenditure figures to be revised upward in the next week's data release, though she warned that updated inventory data may be weaker.
Japan's current recovery trajectory may be supported by Prime Minister Fumio Kishida, who is said to be mulling an early election. While his approval has been improving in recent months due to relatively solid economic figures and a lively Group of Seven summit, a recent scandal involving his son may make the prospect of an early election less attractive.
Japan's businesses still face many risks ahead of a deal with a third-party investor. The impact of a global economic slowdown triggered by interest rate hikes around the globe has been impacting manufacturing in the manufacturing sector, as evidenced by the latest factory output data.
The recent instability in the US financial sector, including the debt-ceiling issue and bank failures, has also resulted in chaos and confusion in the global markets, and the consequences may remain for some time.
China's expansion path out of the pandemic has also been slower than previously expected. China's exports to its neighbouring country have been decreasing for five months, indicating that China's recovery has been losing momentum after an initial burst in consumer and business activity earlier in the year.