Japan Q3 corporate capex falls for first time in nearly 4 years

Japanese business expenditure fell in the third quarter, the first annual decline since the start of 2013, in a worrying sign that uncertainty over the economic outlook is eroding companies' confidence. The capital spending data, which is used to calculate revised gross domestic product (GDP) due on December 8, underscores concerns about a fragile recovery in the world's third-largest economy.
A preliminary estimate last month showed the Japanese economy grew at 2.2 percent annualised in the July-September quarter, much faster than expected by economists, as rebounding exports offset weakness in domestic demand. However, a recent run of soft indicators including exports, factory output and household spending raised doubt about sustainability in the economic growth.
Capital spending in July-September fell 1.3 percent year-on-year, slowing from a 3.1 percent annual gain in the previous quarter, Ministry of Finance data showed on Thursday. It was the first annual decline since January-March 2013, shortly after Prime Minister Shinzo Abe swept to power with a pledge to pull the economy out of stagnation and deflation.
On the quarter, capital expenditure rose 0.4 percent from the previous three months on a seasonally-adjusted basis after excluding software spending, up for the first time in four quarters. Analysts usually watch the MOF capex data for clues on revised GDP figures, but this time is different, some say. "It will be virtually impossible to forecast the revised July-September GDP figures ahead of time. This is because new standards of GDP measurement are being adopted from these revisions," said Takeshi Yamaguchi, economist at Morgan Stanley MUFG Securities wrote in a report.
Japan may revise up gross domestic product data when it adopts a new base year in calculating figures for revised figures for the third quarter, Cabinet Office officials said. The new standards, which will newly include research and development, will be applied to GDP data going back to 1994 when revised figures for the prior quarter is out December 8. The revision raises the level of nominal GDP across time, but the impact on GDP growth rates will be small, the officials said. By sector, the MOF data showed capital spending by manufacturers and non-manufacturers declined 1.4 percent and 1.3 percent respectively in July-September from a year earlier.