Japan May Increase GDP Estimate After Jump in Capital Spending

Japan’s economy probably contracted less than the government initially estimated in the fourth quarter, analysts said after a report showed a jump in companies’ capital spending.

Gross domestic product contracted 0.7 percent on an annualized basis in the three months to Dec. 31, compared with a preliminary report of a 2.3 percent drop, according to the median forecast of 10 economists surveyed by Bloomberg News. The revised figure is due March 8.

Capital spending excluding software rose 4.9 percent from a year earlier, the biggest gain in almost five years, a Finance Ministry report showed today. A weakening yen, gains in industrial production and retail sales, and increased government spending for reconstruction may help the world’s third-biggest economy return to growth this quarter.

“Reconstruction demand was probably the biggest support for the increase in capital spending,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. “The upward trend in business investment is likely to continue as companies become more optimistic as rebuilding demand materializes more and the yen weakens.”

The increase in capital spending in today’s report was the first gain in three quarters. This compares with a median estimate of a 7.4 percent decline in a Bloomberg News survey of six economists.

The Nikkei 225 Stock Average closed 0.2 percent lower after the yen gained.

Gaining Momentum

“Today’s data underlines our forecast that Japan’s capital spending will pick up momentum on the back of demand for quake reconstruction and its increase will accelerate in the second quarter of this year,” said Yuichiro Nagai, a Tokyo-based economist at Barclays Capital. “Given today’s very strong capital investment data, there is no doubt that the fourth-quarter GDP growth will be revised upward.”

The yen traded at 81.15 per dollar as of 4:29 p.m. in Tokyo, compared with a postwar high of 75.35 on Oct. 31. The currency’s decline since the Bank of Japan announced extra monetary stimulus and set an inflation goal on Feb. 14 has aided exporters.

Some of the boost to spending came from chemical and transport equipment companies rebuilding factories damaged in last year’s disaster, the finance ministry said. It also cited the construction of supermarkets and convenience stores, including some in quake-affected areas.

The government has allocated about 21 trillion yen ($259 billion) in stimulus since the March 11 disaster. The Bank of Japan has also expanded monetary stimulus to 65 trillion yen to support growth and drive down the value of the yen.

Bridgestone Corp., the world’s biggest tiremaker by market value, said on Feb. 16 that it will spend about 4.7 billion yen to boost output capacity at its plants in Fukuoka and Saga, western Japan. Toyota Motor Corp., Asia’s largest carmaker, said on Feb. 7 that the company raised its profit forecast 11 percent for the year ending March 31.

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