Japan’s Capital Spending Increased 3.5% in First Quarter

Japan’s companies increased spending in the first quarter, adding to signs the world’s third-largest economy will sustain a recovery this year despite drags from power constraints and the strengthening yen.

Capital spending excluding software rose 3.5 percent from a year earlier, after increasing 4.9 percent in the previous quarter, the Finance Ministry said today in Tokyo. The second straight quarter of expansion compared with a median estimate of a 0.1 percent decline in a Bloomberg News survey of seven economists.

Today’s report will be used by the government to revise preliminary gross domestic product data that showed annualized growth of 4.1 percent in the first three months of the year. The economy should continue to grow this quarter, even with the strengthening yen and electricity supply concerns weighing down company outlooks and export performance.

“The overall picture for capital spending continues to be a gradual recovery,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “Shipments to the U.S. are staying solid and it’s clear that Japan’s major companies are recovering” from last year’s earthquake, she said.

Companies including Panasonic Corp. (6752) and Nippon Steel Corp. (5401) are preparing power-saving measures as the government forecasts electricity shortages due to the closure of all nuclear power plants and will request users to cut consumption this summer. A government panel deliberating on Japan’s energy supply after the Fukushima disaster proposed four scenarios on May 29, including one to go nuclear free, for a final decision by the summer.

Europe’s Crisis

The European debt crisis and concerns that Greece may exit the euro are increasing demand for the yen as a haven. The yen has climbed more than 6 percent against the dollar from this year’s low in mid-March toward October’s record high of 75.35, weighing on export sales and profits for manufacturers.

The yen traded at 78.56 as of 10:21 a.m. in Tokyo, after touching 78.21 the previous day, the strongest since Feb. 15. Finance Minister Jun Azumi told reporters in Tokyo today that the government is watching excessive yen moves, and that the yen and stock markets do not reflect the fundamentals of the economy.

Vice Finance Minister Takehiko Nakao, the nation’s top currency official, said this week in an interview in Hong Kong that the finance ministry will take action on the yen if necessary, suggesting the door is open to intervention to weaken the currency.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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