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Japan's Capital Spending Growth Grinds to a Halt in Q1

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Japan's Capital Spending Growth Grinds to a Halt in Q1

Japanese companies' capital spending was flat year over year in the first quarter, compared with the 6.5% growth in the previous quarter, according to government data released Monday.

The result missed market expectations for a 4.1% increase, according to Investing.com.

Capital spending fell 2% on a seasonally adjusted quarterly basis, the data showed.

Meanwhile, manufacturers' spending declined 0.4% from a year earlier.

Despite the weak investment figures, corporate sales rose 1.1% year over year, while ordinary profits increased 14.6%.

The Iran war has rattled the global economic outlook, with oil prices surging after Tehran effectively closed the Strait of Hormuz, leaving energy-import-dependent Japan particularly vulnerable to the resulting supply shock.

"Capital spending came in significantly weaker than expected. While it's too early to say for certain, we may be starting to see some impact from the Middle East conflict," Yuichi Kodama, chief economist at Meiji Yasuda Research Institute, was quoted as saying by Bloomberg News.

"It's also possible that some companies decided at the last minute to hold back planned investment," Kodama added.

The Ministry of Finance survey is closely watched as an indicator of corporate investment trends and broader economic activity in Japan.

The figures will be used in revised gross domestic product data for the January-March quarter due on June 8.

Preliminary data showed Japan's economy expanded at an annualized real rate of 2.1%, marking a second consecutive quarter of growth.

The data leaves room for debate as the Bank of Japan's outlook weighs further interest rate increases.

Recent hawkish remarks from BOJ policymakers have prompted investors to price in roughly a 79% chance of a rate increase at the June 15-16 meeting.

"Results were weaker than expected, reflecting a pullback from earlier strength," Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, was quoted as saying by Reuters.

"But given steady demand for labor-saving investments and similar areas, capital expenditures are unlikely to deteriorate sharply from here," he added, noting that the outlook would depend on developments in the Middle East.

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