Japan’s Capital Spending Will Avoid ‘Collapse,’ Nabeyama Says

By Toru Fujioka and Tatsuo Ito

Nov. 26 (Bloomberg) -- Japanese companies will keep spending during the recession to remain competitive, according to the chief economist at the Development Bank of Japan.

“I’m not expecting a collapse in business investment,” said Toru Nabeyama, head of economic and industrial research at the state-run bank that provides loans to Japanese companies. “Given that some investment is unavoidable for companies to survive at home and abroad, a drop in capital spending won’t be drastic compared with the past recessions.”

Outlays on factories and equipment will fall around 1 percent this year, the first decline since 2003, because of the global credit shortage, Nabeyama said. That’s about a tenth of the pace of declines six years ago, when Japan was emerging from the previous downturn.

Businesses will keep replacing aging equipment and exploring ways to reduce their dependence on oil for power, the 49-year-old economist said, citing an investment plan by Seven & I Holdings Co., Japan’s largest retailer.

Seven & I said last month that it will install light emitting diodes in its new convenience stores, cutting the use of electricity by 13 percent and reducing carbon emissions. The Tokyo-based company owns more than 12,000 convenience stores nationwide.

Japan’s spending cutbacks will be the least among major economies also because companies have spare money, Nabeyama said. The Development Bank of Japan’s index of cash flow among all companies is hovering around a record 130 from 100 in 1994.

Spending Not Enough

Still, he added, corporate investment won’t be sufficient to prop up the world’s second-largest economy as the credit crunch slows output worldwide.

“The lack of funding is creating a kind of extreme anemia in the economy,” Nabeyama said. “The recovery will take about three to five years.”

Japan slipped into the first recession since 2001 last quarter as the global financial crisis prompted companies to pare spending. Nissan Motor Co. and Canon Inc. are among the exporters that have since announced cutbacks.

“Japan will have no base for growth for a while,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “Waning overseas demand, squeezed profits and a deepening financial crisis mean capital spending will keep slowing.”

Japan’s largest companies surveyed by the DBJ in June said they will increase spending 4.1 percent in the year ending March 2009. Those plans will be revised as earnings of manufacturers are likely to decline by almost a fifth, Nabeyama said.

Canon last week postponed building a plant to make printer cartridges in Oita Prefecture, southern Japan, citing weak demand because of the global downturn. Nissan, Japan’s third- largest carmaker, said last month it will reduce capital spending by 11 percent.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; To contact the reporter on this story: Tatsuo Ito in Tokyo at tito@bloomberg.net.