By Daniel Leussink

TOKYO (Reuters – Japanese companies increased their spending on plant and machinery for the second quarter of July-September. The increase was due to corporate activity remaining resilient to the impact from the pandemic. But, gains slowed.

Policymakers should be concerned about a slow uptake in business spending, as they hope that strong domestic demand will make the country’s recovery more sustainable.

Data from Ministry of Finance (MOF), released Wednesday, showed that capital expenditures in the third quarter increased 1.2% compared to the previous year.

This was the second consecutive quarter with year-on-year growth, after the first quarter saw a 5.3% increase.

This data is used for the revision of gross domestic products (GDP), which are due to be calculated next Wednesday. It comes after factory output grew in October. There have been hopes that this will lead to a rebound fueled by higher vehicle production.

Global supply disruptions caused by global shortages at exports and a weakening consumer mood led to the decline of the world’s 3rd largest economy.

According to preliminary estimates, the economy experienced a 3.0% annualized contraction in July and September amid an increase of coronavirus-related infections.

The data from Wednesday revealed that the manufacturers’ business expenditure increased 0.9% compared to a previous year, while service-sector companies saw an increase of 1.4%.

However, capital expenditures fell by 2.6% between July and September on a seasonally adjusted basis according to MOF data.

The corporate recurring profit rose 35.1% from last year to July-September, and sales rose 4.6%