Japan Capital Spending Declines, Manufacturing Sector Shrinks

Japanese companies reduced their investment on plant and equipment in the fourth quarter and the manufacturing sector contracted the most since 2016 as production volumes were adversely affected by delayed input deliveries and reduced demand in February.

The Ministry of Finance on Monday said capital spending decreased 3.5 percent in the December quarter from last year, reversing the 7.1 percent increase in the preceding period. This was also bigger than the expected fall of 2.5 percent.

Manufacturers’ investment in plant and machinery declined 9 percent and that of non-manufacturers edged down 0.1 percent.

Company profits fell at a pace of 4.6 percent in the last quarter of 2019, following a 5.3 percent drop in the previous quarter. At the same time, sales declined 6.4 percent after easing 2.6 percent.

Elsewhere, a private survey from IHS Markit showed that the Jibun Bank manufacturing Purchasing Managers’ Index fell to 47.8 in February from 48.8 in January, its lowest mark since May 2016.

The impact of COVID-19 was most apparent in new order intakes. New orders placed with Japanese goods producers fell at the sharpest rate since December 2012.

The combined impact of lower sales and input delivery delays contributed to a further decrease in production volumes in February. However, manufacturers still expect output to be higher in 12 months’ time.

Joe Hayes, an economist at IHS Markit, said the decline in order books cannot be wholly attributed to the COVID-19 outbreak, so it appears that Japan’s manufacturing recession goes much deeper, but lower sales in China during the month add further woes to an already-fragile external environment.

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