Japanese companies lift spending

High-profile cutbacks have not stopped investment

Japanese firms are investing more despite the global downturn which is forcing companies to strip out jobs and costs.

But economists said the news of a 2.3% rise year-on-year in the three months to June was only a drop in the ocean amid Japan's huge economic problems.

And the knives came out at ceramics maker Kyocera for the second time in a week, as the hard-hit firm unveiled sweeping cutbacks in capital expenditure.

The company said it is slashing capital spending for the current year by 38% to 50bn yen ($419m; £290m) less than a week after announcing 10,000 job cuts, one fifth of its total workforce.

Pump priming

The news of rising capital expenditure came from a Ministry of Finance survey, which is likely to feed into official economic growth estimates due out on Friday.

The announcement was met with grudging appreciation from economists.

"The capital spending figures are at the higher end of expectations... Machinery orders data, which are the leading indicators, had been weak in January to March and we had expected somewhat lower numbers," said Minako Iida, economist at Deutsche Securities.

"But the figures are not strong enough to brighten the outlook for the GDP figures."

Others were slightly less gloomy, with several banks lifting GDP estimates by a few tenths of a percentage point.

But still the consensus is for GDP to have contracted between 0.6% and 1% in the quarter.

"The pressure is certainly on the government," said Matthew Poggi, a Lehman Brothers economist in Tokyo.

"I suppose it began last week with unemployment touching 5%," he said.

"The question facing the pime minister now is, with the package being constructed, how much of his reform agenda can be included in that."

Profit weakness

But apart from the investment numbers, the rest of the news from the Ministry of Finance survey was disappointing.

Corporate sentiment for the current quarter - indicating businesses' confidence or otherwise about their prospects - worsened significantly, dropping to minus 17.5 from minus 12.4 in April-June. A negative number indicates pessimism.

Corporate profitability was also hit, with average pre-tax profits at manufacturers with capital exceeding 10bn yen fell 1.6% year-on-year in the June quarter, the government said.

Electronics and food dragged the figure down, whereas transport and general machinery makers saw profits rise.

The decline is the first since April 1999.