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Japan Firms Boost Fourth-Quarter Capital Spending

Japanese firms' capital spending in October-December rose more than expected from a year earlier, underscoring the view that continued strength in the corporate sector is supporting the economy's steady recovery.

The survey suggests that revised gross domestic product (GDP) figures for the same quarter due out on March 12 could be revised up from the already solid preliminary data.

Spending on plant and equipment was up 16.8 percent compared with the same quarter last year, marking the 15th straight quarter of increase, the survey by the Ministry of Finance showed on Monday. That beat the 12.0% rise in the previous quarter.

"The capex figure was a bit stronger than expected. The capex component in the upcoming revised GDP data could be revised up about 1%," said Hiroshi Shiraishi, an economist at Lehman Brothers.

Forecasts by five economists surveyed by Reuters had ranged from rises of 13.0% to 14.2%, although many economists do not publish forecasts for the data.

The financial markets appeared to react little to the data, buffeted instead by the global sell-off in stocks and continued unwinding of foreign exchange positions.

The Nikkei 225 Average fell below 17,000 for the first time in nearly two months, sliding more than 2% in the afternoon Tokyo session, while the yen struck a three-month high against the dollar as investors reversed bets against the Japanese unit amid caution over tumbling global stock markets.

Capital expenditure excluding software investment rose 17.6% from a year earlier, compared with an 11.9% increase in July-September. Economists said after the data that Japan's GDP growth for the last quarter of 2006 could be revised up from the initial reading of 1.2% growth,
which was the strongest pace in nearly three years.

"The data gave me the impression that it will likely lead to an upward revision to capital investment in the gross domestic product data for October-December as well as the overall GDP figure," said Yasuo Yamamoto, senior economist, Mizuho Research Institute.

But the survey did little to alter market expectations that the Bank of Japan will go slow on future rate hikes. "The data was about the past, so it will have little implication on monetary
policy," said Yamamoto.

The BOJ raised rates a quarter percentage point to a decade-high of 0.5% last month, judging that the economy would remain on track for steady growth and prices would rise.

BOJ Governor Toshihiko Fukui told a news conference after the rate decision that GDP data had shown that companies' capital investments remain robust on the back of their brisk earnings.

Japan is currently experiencing its longest period of expansion in the postwar era, although the rate of growth has been much slower than in past booms.

The MOF's latest survey also showed Japanese companies' recurring profits in October-December rose 8.3% from the same quarter a year earlier to 14.97 trillion yen ($128.2 billion). That was slower than the 15.5% increase logged in July-September.

Their sales rose 7.0%, compared with a 7.3% year-on-year rise the previous quarter. The survey was based on responses from 19,319 companies.

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