Japan Companies Cut Spending 18.1%, Most in Decade

March 5 (Bloomberg) -- Japanese companies cut spending last quarter at the fastest pace in a decade as exports crashed and earnings at manufacturers from Toyota Motor Corp. to Sharp Corp. evaporated.

Capital spending excluding software fell 18.1 percent in the three months ended Dec. 31 from a year earlier, a seventh quarterly decline, the Ministry of Finance said today in Tokyo. Profits tumbled 64.1 percent, the most since 1974.

The plunge in investment, along with a drop in inventories, probably means last quarter’s decline in gross domestic product was steeper than the annualized 12.7 percent reported last month. Economists predict an even worse contraction in the current three months as an unprecedented slump in exports and production prompts companies to fire thousands of workers.

“The fourth quarter was a disaster and the first quarter of the calendar year is going to be an even larger disaster,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

The government will use today’s report to revise GDP on March 12. Inventories fell by 4.6 trillion yen ($46 billion), the most in more than a year, the ministry said. The reduction suggests the economy shrank more than initially estimated, said Akira Maekawa, a senior economist at UBS AG in Tokyo.

Replenishing Stockpiles

Factory output may start to pick up next quarter as companies replenish stockpiles that they drained because of tumbling sales, according to Masayuki Morikawa, deputy director-general at the Trade Ministry.

“Output looks set to recover as long as demand picks up,” Morikawa said in an interview yesterday, adding that China holds the key to any rebound.

Still, sales have yet to show signs of improvement. Exports plunged 45.7 percent in January, extending a streak of record declines that started in November. Federal Reserve Chairman Ben S. Bernanke said last week the U.S. economy, Japan’s biggest market, may not recover until next year.

Companies are closing factories, not building them. NEC LCD Technologies Ltd. will probably shut a plant in southern Japan this year as part of a cost-cutting drive at parent NEC Corp.Sony Corp. and Pioneer Corp. are also closing facilities and firing workers.

Toyota, Japan’s biggest automaker, expects its first annual loss in 59 years in the period ending March. Sharp, the country’s largest maker of liquid-crystal-display televisions, will post its first loss in more than five decades and cut 1,500 temporary jobs because of falling sales.

Credit Squeeze

As well as losing money that could be invested in factories and equipment, companies are finding it harder to raise cash to fund spending.

Toyota may turn to the government for loans because private investors are demanding up to 50 percent more in interest for its debt. Companies including Sony and Kobe Steel Ltd. have had to scale back bond sales for lack of buyers.

The government this week said it would tap some of its $1 trillion in foreign reserves to help the state-run Japan Bank for International Cooperation increase loans to companies operating abroad.

Bank of Japan Governor Masaaki Shirakawa said this week the economy is worsening faster than his policy board expected. Purchases of corporate bonds and commercial paper by the bank, which in December lowered the key overnight lending rate to 0.1 percent, haven’t fully restored credit markets, Shirakawa said.