©Reuters. Factories line the port in Osaka, western Japan, October 23, 2017. Picture taken October 23, 2017. REUTERS/Thomas White/File Photo
By Tetsushi Kajimoto
TOKYO (Reuters) – Japanese business spending on plant and equipment rose in the fourth quarter, suggesting likely positive revisions to data that showed the economy unexpectedly slipped into recession last year.
The strong capital expenditure data could also strengthen the case for the central bank to normalize its extremely accommodative monetary policy in the near term. Investor attention is now turning to this year’s wage negotiations, which could lead to bigger pay rises, a prerequisite for ending negative interest rates.
Capital spending rose 16.4% in the fourth quarter from a year earlier, and 10.4% on a seasonally adjusted quarterly basis, led by sectors such as transportation, information and communications, according to data from the Ministry of Finances shown on Monday.
The data will be used to calculate revised gross domestic product data due March 11. Preliminary estimates last month showed Japan’s economy contracted in the October-December period for the second consecutive quarter, the definition of a technical recession, weighed in part by a decline in GDP. The capex component of GDP fell by 0.1% on a quarterly basis for the third consecutive quarter of decline.
Takeshi Minami, chief economist at the Norinchukin Research Institute, said GDP data could now be updated to show an expansion in the fourth quarter, which would effectively mean the economy managed to avoid a recession late last year.
“It could be encouraging for the Bank of Japan even though it may not have a direct implication on monetary policy,” Minami said. “Wages are in focus and we still expect the central bank to end negative rates in April rather than March.”
Three other economists expect GDP to range between 1.1% annualized and 1.4% growth in the fourth quarter, compared with a preliminary estimate of a 0.4% contraction.
MOF capex data on Monday also showed that corporate sales increased 4.2% quarter-on-quarter and recurring profits increased 13.0% in the October-December quarter compared to the same period a year ago.