TOKYO- Japanese firms slashed spending on plant and equipment by the most in a decade in the second quarter, the government said on Tuesday, suggesting the economy will take a protracted period to fully rebound from the coronavirus-induced slump.
Separate private-sector data showed that factory activity in August shrank at the slowest pace in six months, reducing some pressure on policymakers to act more aggressively to prevent a deeper recession. Other official data pointed to worsening labor market conditions.
The fall in spending comes after the government called a state of emergency early in the second quarter in a bid to tackle the health crisis, which also led to sharp declines in corporate profits and sales in the quarter.
Capital spending shed 11.3 percent in April-June year-on-year, the biggest drop since the first quarter of 2010, as the COVID-19 crisis hit investments by the manufacturing as well as service sector, Ministry of Finance (MOF) data showed on Tuesday.
“The deceleration in capital spending is likely to become stronger in the second half of the fiscal year,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.
“Production has fallen considerably so there are more moves to put off spending as it isn’t seen as being necessary or urgent for the time being.”
Tuesday’s sharp decline followed a 0.1 percent rise in the first three months of the year. On a seasonally-adjusted basis, capital expenditure lost 6.3 percent quarter-on-quarter in April-June.