Japan business investment slows on supply snags

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Japan business investment slows on supply snags

Japanese firms cut investment for the first time in a half-year last quarter as supply shortages hit activity and businesses grew cautious during the summer spike of Covid 19 that caused emergency restrictions.

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Capital expenditures excluding software decreased by 1.1% in the three months through September, compared to the previous quarter, according to a report by the finance ministry Wednesday that included revisions to past results.

Both manufacturers and service firms cut investment, with spending by goods makers falling by 1.5% due to supply chain snags.

The revised gross domestic product figures will be released next week, and will be updated with the capital spending data. The economy shrank as consumers backed off due to rising virus cases and restrictions on business hours, while firms cut spending by 3.8%.

Capital spending wasn't very good in the third quarter due to supply bottlenecks and delta variant, said economist Taro Saito at the NLI Research Institute. Business investment should pick up the pace and become a driver of the recovery. Most of the economists think Japanese growth is resuming this quarter, now that vaccination rates are above 75%, most limits on activity have been lifted, and supply shortages are starting to resolve.

The emergence of the new omicron variant, which has triggered tighter travel restrictions across the globe, has introduced a new element of uncertainty as the world heads into the holiday season. Japan has shut its borders to foreign visitors this week.

Japanese business investment slowed in 3Q, pressured by virus curbs and supply-chain constraints. Order plans from the non-manufacturing sector show a rebound. China s slowdown and chip shortage are the reasons why manufacturers orders are set to fall. We expect capex to increase moderately next year, as these problems should be temporary. Wednesday's business survey showed that surging commodity prices are squeezing Japanese business, even though most firms aren't passing their costs on to consumers.

Profits fell 7.9%, the most since the early days of the epidemic when business activity fell close to a halt.

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