The updated fourth quarter growth estimate is out next week and commentators now expect a sharp downgrade after yesterday's report. Japan's Finance Ministry said that excluding software, capital spending fell 7.3% in the December quarter. That was double market forecasts.
Including software, capital spending slid 7.7% from a year earlier. The government uses the spending figure without the software contribution to calculating its revision to GDP.
Commentators say Japan's Cabinet Office will use the report to revise its estimate on March 12. Last month the Cabinet office said that the Japanese economy grew at a surprisingly strong annualized rate of 3.7% in the fourth quarter.
The main driver for growth during the quarter was a jump in corporate capital investment, which rose 2.9% from the September quarter. Quarterly growth was 0.9%, more than double the expected 0.4%. That 2.9% growth rate accounted for half the December growth figure of 0.9%.
As well as declining investment, the Finance report showed that Japanese corporate profits fell the most in five years, thanks to the higher yen and higher costs of oil and raw materials. Machinery orders have fallen for two months in a row (a key indicator of investment) and anecdotal reports say the slide is continuing as companies scale back investment.
Corporate profits fell 4.5% last quarter from the last three months of 2006, the steepest decline since the second quarter of 2002. The Finance Ministry said sales rose 2.3%. Economists say that yesterday's survey makes up about 60% of the capital spending component of the revised GDP report. The preliminary estimate was based on shipments data from the government's monthly production stats.
Friday's Bank of Japan monthly meeting comes as there's a succession problem at the central bank. It's governor Toshihiko Fukui's final board meeting and the floundering Japanese Government has postponed proposing its candidate to succeed Fukui on signs the opposition may block its preferred choice, deputy governor Toshiro Muto.
The government may nominate Yukata Yamguchi who was a deputy governor from 1998 to 2003, to avoid a clash with opposition parties The Japanese government has its economic assessment for the first time in more than a year because of falling exports and production.
The fall in investment mirrors that slowdown forecast. Factory production fell at the fastest pace in a year in January, and exports to the US, Japan's largest market, slid for a fifth month in a row
Consumer prices rose 0.8%, matching December's increase as the steepest in more than nine years.
