Economic Takeaways From Japan's Capital, Household Spending

  • Spending by companies rises, even as profits decline
  • Household spending falls in January; Joblessness also drops

What you need to know about Tuesday’s economic data released in Japan:

CAPITAL SPENDING (OCTOBER-DECEMBER PERIOD)

  • Capital investment rose 8.5 percent (8.7 percent forecast) in the final three months of 2015 from a year earlier, after rising 11.2 percent in the previous quarter.
  • Excluding software, it , rose 8.9 percent (8.7 percent forecast), after also increasing 11.2 percent in the previous quarter.

The takeaway: Tuesday’s data will be reflected in a revision of capital spending that feeds into an update of gross domestic product to be released March 8. Preliminary figures on Feb. 15 indicated that economy contracted an annualized 1.4 percent in the fourth quarter. Atsushi Takeda, an economist at Itochu Corp. in Tokyo, said Tuesday’s data indicates there is a “high chance” that the business investment figure in the GDP report may be revised lower.

Economist’s view: “Given growing concerns over global demand along with gains in the yen and declines in stocks since the start of the year, businesses are becoming more cautious about spending,” Takeda said after the data was released. “Going forward, business investment looks weak.”

COMPANY PROFITS, SALES (OCTOBER-DECEMBER PERIOD)

  • Corporate profits fell 1.7 percent in the fourth quarter from a year earlier, after rising 9 percent in the third quarter.
  • Company sales fell 2.7 percent in the fourth quarter from a year earlier, after gaining 0.1 percent in the third quarter.

The Takeaway: One of the successes under Abenomics has been strong -- and sometimes record -- corporate profits, supported by a weaker yen and lower oil prices, so the first drop in corporate profits since 2011 is worrisome as is the decline in corporate sales. While the global economy is slowing and the yen is strengthening this year, corporate profits are peaking out, said Hiroaki Muto, chief economist at Tokai Tokyo Research Center Co.

Economist’s view: “The momentum of Abenomics we had observed in 2013 is slowing and disappointment over Abenomics is spreading,” Muto said. In that environment, expectations for economic stimulus are building, he said.

HOUSEHOLD SPENDING (JANUARY)

  • Household spending fell 3.1 percent (-2.7 percent forecast) from a year earlier.

The takeaway: The report, together with Monday’s retail sales data, suggest that weakness in consumer spending -- which played a big part in the economic contraction last quarter -- may continue. And the stock market rout since the start of the year may also be affecting consumers’ mindset.

Economist’s view: “Consumer spending continues to be discouraging,” said Yasuhiro Takahashi, an economist at Nomura Securities Co. in Tokyo. “Households are keeping their purse strings tight as an increase in food prices is making them cautious. Tumbling stock prices are also affecting their sentiment.”

JOBLESS RATE (JANUARY)

  • Unemployment rate stood at 3.2 percent in January, compared with 3.3 percent in December.
  • Job-to-applicant ratio was as 1.28 in January, from 1.27 previously.

Takeaway: The data suggest strong employment continues to be a bright spot in Japan’s economy. Yet wage growth is subdued and household spending remains weak, signaling that the virtuous cycle of Abenomics isn’t working well, Muto said.

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