Japanese companies cut spending on plant and equipment in July-September for a second straight quarter as the coronavirus pandemic hit private sector demand.

Weakening capital spending should provide a source of concern to policymakers who are counting on private demand to help the world’s third-largest economy recover from the deepest postwar slump wrought by the health crisis.

Ministry of Finance data out Tuesday showed Japanese firms’ capital expenditure fell 10.6% in July-September from the same period in the year before, following a decline of 11.3% in the previous quarter.

On the quarter, corporate capital spending declined 1.2% in July-September on a seasonally-adjusted basis, narrowing from a 7.1% decline in the previous quarter.

The data will be used to calculate revised gross domestic product figures (GDP) due at 8:50 a.m. Dec. 8 (2350 GMT Dec. 7) and follows a preliminary estimate that Japan’s economy expanded 21.4% annualised in the third quarter.

The preliminary GDP data showed capital expenditure fell 3.4%, shrinking for a second straight quarter, dashing policymakers’ hope that private sector spending could revive the economy.

Tuesday’s data also showed ordinary profits at Japanese firms fell 28.4% in July-September from the same period a year before, after nearly halving in the April-June quarter year-on-year. It was the sixth straight quarter of declines.

Corporate sales dropped 11.5% year-on-year in July-September, posting annual declines for the fifth straight quarter.

Analysts expect the economy to contract 5.6% the fiscal year ending March 2021 and that it could take years to return to pre-crisis levels.

To cope with the virus pain and a post-COVID era, ruling party lawmakers have demanded an extra budget of 20 trillion-30 trillion yen to fund new stimulus ordered by premier Yoshihide Suga. 

Reuters