Japan corporate capex, profits sag as COVID impact bites

By Tetsushi Kajimoto and Daniel Leussink

TOKYO (Reuters) - Japanese companies cut spending on plant and equipment in July-September for a second straight quarter as the coronavirus hit private sector demand, keeping policymakers under pressure to deploy large stimulus to respond to the pandemic.

Weakening capital spending is likely to worry the government, which is counting on private demand to help the world's third-largest economy recover from the deepest postwar slump caused by the health crisis.

Ministry of Finance data out on Tuesday showed Japanese firms' capital expenditure fell 10.6% in July-September from the same period in the year before, following a decline of 11.3% in the previous quarter.

On the quarter, seasonally-adjusted capital spending fell 1.2%, less than the prior quarter's 7.1% drop and smaller than the 3.4% capex component in preliminary GDP readings for the quarter.

Corporate ordinary profits fell 28.4% in July-September from the same period a year before, after nearly halving in the April-June quarter year-on-year. It was the sixth straight quarter of decline.

While the contraction points to challenging conditions, some analysts say the capex data suggests upward revision to third-quarter gross domestic product (GDP) data due 2350 GMT Dec. 7, after preliminary estimates showed the economy expanded an annualised 21.4%.

Separate data painted a mixed picture on Japan's job market. The jobless rate rose to 3.1% in October from the prior month's 3.0%, while the job availability rose to 1.04 from the prior month's 1.03, up for the first time in 1-1/2 years.

"This attests to the global manufacturing-centred economic recovery," said Hiroaki Muto, an assistant general manager at Sumitomo Life Insurance Co.

"Attention should be paid to the impact of a service-sector slowdown over the winter going into the start of next year."

To cope with the virus pain, ruling party lawmakers have sought an extra budget of 20 trillion-to-30 trillion yen ($190 billion-$290 billion) to fund new stimulus ordered by premier Yoshihide Suga.

"Steps are needed to both make up for the loss of demand as well as to create future-oriented investment in areas like digital transformation and green society to boost capital expenditure," said Takeshi Minami, chief economist at Norinchukin Research Institute.

(Reporting by Tetsushi Kajimoto and Daniel Leussink; Editing by Sam Holmes)