Sunday, September 4, 2011

Japanese businesses cut investment amid growth concerns

Japanese firms cut their investment in business expansion during the second quarter, indicating continued fears about Japan's economic growth.

Companies spent 7.7tn yen ($101bn; £62bn) on plant and equipment, a 7.8% decline from a year earlier, the ministry of finance said.

This was the first year-on-year decline in investment in four quarters.

Japan's economy is currently in a recession, and has contracted for three consecutive quarters.

"There are negative tendencies in the overseas markets due to concerns of a global economic slowdown," Junko Nishioka of RBS Securities told the BBC.

"That is driving the negative sentiment among Japanese manufacturers," she added.

Yen factor

A slowdown in key markets such as the US and Europe has dealt a double blow to the Japanese manufacturers.

First, demand from these two markets has declined, hurting growth in Japan's export-dependent economy.

To make matters worse, uncertainty about growth in the developed economies has seen investors flee to safe-haven assets such as the yen, sending the value to the Japanese currency to record levels in recent days.

The yen has remained strong despite two interventions by the government to try and weaken it.

Shifting base?

A strong currency not only makes Japanese goods more expensive to buyers but also hurts their profits when they repatriate their foreign earnings back home.

Analysts said that a strong currency was deterring firms from expanding their business in Japan.

"I think there are signs that Japanese manufacturers are shifting their productions lines overseas," Ms Nishioka said.

"Some surveys have indicated that as many as 40% of manufacturers were considering to shift abroad." she added.

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