Japan Q3 capital spending jumps nearly 10%, fastest pace in 4 years

By Ambar Warrick 

Investing.com-- Japanese firms ramped up capital spending at their fastest pace in over four years in the third quarter, data showed on Thursday, driven largely by increased investment in electricity grids and the real estate market. 

Capital spending in the three months to September 30 jumped 9.8% from the prior year, data from the Ministry of Finance showed, blowing past expectations for growth of 6.4%, and well above the prior quarter’s reading of 4.6%.

Ordinary corporate profits also grew more than 10% in the third quarter, although the pace of growth slowed substantially from last year. 

The data showed that major Japanese firms remained optimistic over the country’s economic outlook, despite increasing headwinds from high inflation and a weak yen. 

An energy shortage in the country spurred increased investment in its electricity grids, as the government recently flagged plans to extend the life of several nuclear power plants to reduce its reliance on coal and natural gas imports. 

Ultra-low interest rates in the country also kept its property market attractive for investors, and kept investment elevated in the sector.

The positive figures are likely to factor into a revised gross domestic product reading for the third quarter, which is due next week. An initial GDP reading showed that Japan’s economy unexpectedly shrank 0.3% in the third quarter.

Japanese retail sales also grew less than expected in recent months, as a weakening yen weighed on consumer spending. 

The world’s third-largest economy is struggling to navigate through pressure from high inflation and a softening yen, which was triggered largely by disruptions in the commodity market stemming from the Russia-Ukraine war.

The Bank of Japan has also given no indication that it will tighten monetary policy to help curb inflation, which weighed heavily on the yen this year as the gap between local and U.S. interest rates widened. 

Japanese consumer inflation is trending at its highest level since 1982, heralding more near-term pressure on the economy. While increased capital spending is likely to help ease some pressure, the outlook for the world’s third-largest economy appears dim. 

Still, the yen reacted positively to Thursday's data, jumping 0.6% to an over three-month high.