By Tetsushi Kajimoto

TOKYO (Reuters), Japanese businesses increased their capital expenditure for the fourth quarter of January-March. The increase is a testament to the strength and resilience of Japanese investment, despite the uncertainty surrounding the COVID pandemic in Ukraine.

Policymakers who rely on Japan’s cash-rich corporations for their investment could be optimistic about firm business spending. This would help to support a recovery driven by domestic demand.

After a 4.3% rise in capital spending in the fourth quarter of last year’s first quarter, the Ministry of Finance data on Wednesday showed that 3.0% of capital expenditures in this quarter rose to 3.0%. Manufacturers of transportation equipment saw gains due to investments in new technology and metal producers faced with the challenge to increase their output.

This reading will help to calculate the revised Gross Domestic Product (GDP), numbers that are due Wednesday. Economists anticipate a decrease in the revision.

“Capital expenditure remained stable particularly for manufactures, driven by demand. But the service sector was still reeling from this pandemic. According to Takeshi Minami of Norinchukin Research Institute, the economy chief at Norinchukin Research Institute, it wasn’t strong enough to raise GDP.

As the Japanese adjust to coronavirus living and border control eases, the service sector and inbound tourism activity will rise, contributing to a gradual recovery of capital investment and the overall economy.

Preliminary data shows that the world’s third-largest economy fell 1.0% in its first quarter. This was due to coronavirus curbs. Supply disruptions caused by rising raw materials costs and supply interruptions. Two quarters of the economy experienced contraction over the last year. This indicates a fragile recovery.

Although many economists predict the economy will return to growth over the next quarter, the chances of a V-shaped recovery are dimming due to the Ukraine crisis as well as the possibility that coronavirus infections might recur.

According to the MOF data, manufacturers’ spending rose 5.9% compared with a year ago, almost reaching pre-pandemic levels. However, non-manufacturers increased 1.6%. This is below COVID levels.

The corporate recurring profit rose 13.7% to $22.8 trillion yen ($177billion) from the previous year, which is an unprecedented amount for a quarter. Sales were also up 7.9%.

According to a MOF official, “Both profits and sales have increased.” However, weakness can be seen in the electric and auto machinery sectors because of supply restrictions and rising raw materials prices.

“The size of the business and its type will determine the extent and unevenness of the recovery.”

According to the MOF data, capital expenditure increased 0.3% over the past three months in the January-March quarter, seasonally adjusted.

($1 = 129.1300 yen)