Rise in Japan's Q1 capex undercut by pandemic-driven profit slump

JAPAN - TOKYO. Japanese firms raised spending on plant and equipment in the first quarter, though a sharp drop in profits highlighted the economic pain inflicted by the coronavirus pandemic.

Capital spending rose 4.3% in the first quarter year-on-year, lifted by demand for electrical machinery and big-ticket items, a preliminary survey by the Ministry of Finance (MOF) showed on Monday.

However, corporate recurring profits decreased sharply at their fastest pace in over a decade, according to the survey, backing recent data underlining the pandemic's sweeping impact.

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The damage from the virus is likely to have worsened due to a wider hit to the domestic economy from March, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"It's likely there will be a bigger drop in April-June," he said.

Japan's economy slipped into recession for the first time in 4-1/2 years in the last quarter, putting the nation on course for its deepest postwar slump.

The government last week lifted an April-imposed state of emergency and approved a second US$ 1.1 trillion stimulus package to combat the blow from the pandemic, which has ravaged the global economy and upended supply chains.