March 19, 2002
Japanese Firms To Reduce Spending In 02-03: Survey
Tokyo, March 18: Japanese companies plan to cut capital spending by 2.2 per cent in the year from April, a survey by a Government-affiliated body showed on Monday, suggesting any cyclical upturn in Japan will remain modest. But the survey of around 2,900 companies, taken in February by the Development Bank of Japan (DBJ), showed a drop in business investment moderating from a steeper 7.7 per cent slide in the current fiscal year to March 31. It also showed companies expecting an earnings rebound. Companies, on average, expect pre-tax profits to rise 35 per cent for the year from April 1, compared to an estimated 28.7 per cent drop in the current financial year to March 31. "Companies are reluctant to spend, despite corporate profits recovering next business year," said Mr Nobuyuki Arai, DBJ research director. The survey is widely seen as an early guide to the Bank of Japan's closely watched "Tankan" corporate sentiment survey to be released on April 1. Japan's once-mighty manufacturers, hit hard by the country's deep recession and rising competition from China, expect to slash capital spending by 8.2 per cent this year, the survey said. "Major firms like Sony Corp and auto-makers are increasingly turning to China for cheaper investments and that is set to hamper domestic capital expenditure growth," said Mr Ryo Hino, economist at JP Morgan in Tokyo. Non-manufacturers, such as retailers and telecommunications companies, plan to maintain spending levels from the previous year, according to the survey. Fueled by a faster-than-expected rebound in the United States, Japan's economy - the world's second-largest - is expected to see an export-led upturn this year after slipping deeper into recession in the final three months of last year. But business spending remains stubbornly weak, falling a staggering 12 per cent in the October-December quarter last year, according to gross domestic product figures released on March 8. Reinforcing the trend, January's core machinery data showed orders tumbling a record 15.6 per cent from a year ago, suggesting the world's number two economy still must endure more pain before joining the United States in a fledgling global recovery. Arai at DBJ said he expected spending to remain under pressure for the first half of this year."Core machinery orders data, out last week, showed that environment will be tough for the first half," said DBJ's Arai. The DBJ report said Japanese firms planned to slash information technology-related spending by 7.6 per cent for 2002/03, agsinst furious growth of 17.0 per cent the previous year. Domestic manufacturers, especially in the high-tech sector, have suffered the double blow of plunging demand following the bursting of the global infotech bubble last year and the aftershocks from the September 11 attacks on the United States. Some economists point to recent falls in inventory stockpiles as proof the worst may be over, but they also stress any return to growth in the year starting April will be modest. Twenty-two economists surveyed by Reuters last week expected on average Japan's economy in fiscal 2002/03 to shrink by 0.5 per cent, following a 1.4 per cent contraction this year. They also forecast capital spending to worsen in 2002/03, with some expecting a fall of 8.0 per cent year-on-year. The scope for further help from fiscal or monetary policy is limited, and most economists say high and rising unemployment will continue to subdue private-sector consumption, the lion's share of GDP, throughout the year. A rally in Tokyo share prices and some brighter economic signs have taken pressure off the Bank of Japan, to ease monetary policy again this week, despite calls for more aggressive action from ratings agency Standard & Poor 's. The nine-member board, which meets on Tuesday and Wednesday, is expected to keep its current stance of providing excess liquidity and to finalise an earlier decision to expand the range of eligible collateral for its money market operations. Prime Minister Junichiro Koizumi has pledged to curb the country's massive debt, the highest among industrial nations, by limiting annual Government bond issuance to 30 trillion yen ($230.9 billion) in the current fiscal year and next. But he said on Monday that from fiscal 2003/04 Japan would be flexible in new bond issuance. "We will act flexibly, depending on the economic situation, with fiscal prudence in mind," he told a Parliamentary Committee. - Reuters
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