Japan Companies Cut Spending by Record; Profits Slump

By Keiko Ujikane

June 4 (Bloomberg) -- Japanese companies cut spending at the fastest pace in 54 years as a slump in global demand eroded profits, leaving less money for plant and equipment.

Capital spending excluding software fell 25.4 percent in the three months ended March 31 from a year earlier, the largest drop since the government began the survey in 1955, the Ministry of Finance said today in Tokyo. Profits tumbled a record 69 percent.

Manufacturers from Panasonic Corp. to Konica Minolta Holdings Inc. have cut jobs and are closing factories or scaling back spending plans amid an unprecedented decline in exports. Still, production and shipments abroad have picked up since last quarter, and companies will gradually start to increase spending later this year, said economist Kyohei Morita.

“Capital investment will probably return to growth from the third quarter, albeit slowly,” said Morita, chief Japan economist at Barclays Capital in Tokyo. “The main driver will be exports, especially to China.”

The yield on Japan’s 10-year bond fell 2.5 basis points to 1.52 percent at 1:20 p.m. in Tokyo. The Nikkei 225 Stock Average lost 0.5 percent, paring this year’s gains to 9 percent.

The government will use today’s report to revise gross domestic product on June 11. Preliminary figures showed the world’s second-largest economy shrank at a record 15.2 percent annual pace last quarter, and analysts predicted little change to that figure.

Revised GDP

Morita said GDP probably fell 14.5 percent, still the worst-ever contraction. Junko Nishioka, an economist at Royal Bank of Scotland Group Plc in Tokyo, predicted 15 percent, and Hiroshi Shiraishi of BNP Paribas SA said a “major” revision was unlikely.

Last quarter probably represented the worst of Japan’s deepest postwar recession. Finance Minister Kaoru Yosano said yesterday that the economy will probably resume growing this quarter, echoing a prediction made by Bank of Japan Governor Masaaki Shirakawa last month.

Industrial production climbed at the fastest pace in 56 years in April from March as companies made more cars and electronics to replenish stockpiles they ran down during the worst of the export slump. Exports rose for a second month.

Even after the increases, output and exports remain down by more than 30 percent from a year earlier, and the recession is spreading to consumers as companies cut jobs and paychecks. The unemployment rate climbed to a five-year high in April, when wages fell for an 11th month.

‘Subdued’ Growth

“We have to assume economic growth will be subdued for a considerable period after the boost from inventory reductions wanes,” said BNP’s Shiraishi.

Panasonic, the world’s largest maker of plasma televisions, said last month it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February. The company may delay the start of a chipmaking plant in Toyama, northwest of Tokyo, Kyodo News reported today.

Konica Minolta, a maker of film used in liquid-crystal displays, said this week that it will eliminate jobs and reduce spending on research to help save 33 billion yen ($345 million) in costs this year.

“Nobody’s building new factories,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. “Capital formation is unlikely to be a driver of growth in the foreseeable future.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net