Pretax profits among nonfinancial Japanese companies jumped 17.6 percent from a year earlier to a record 28.32 trillion yen ($203 billion) in the April-June quarter, government data showed Thursday, boosted by a weak yen and the waning impact of the COVID-19 pandemic despite surging commodity prices.
Capital spending gained 4.6 percent to 10.61 trillion yen, rising for the fifth straight quarter, after companies sought to increase output capacity and add equipment to cope with a recovery in demand, according to the Finance Ministry data.
Japan's economy has been recovering, helped by the lifting of antivirus curbs that had dealt a blow to the services sector. A sharp drop in the yen's value has also benefited big manufacturers but it has inflated import costs for energy, raw materials and food, boding ill for the resource-poor nation.
Both the manufacturing and services sectors reported their highest pretax profits since comparable data became available in 1954. Manufacturers saw an 11.7 percent year-on-year jump to 11.23 trillion yen while nonmanufacturers logged a 17.09 trillion yen profit, up 21.9 percent, the ministry data showed.
Capital expenditure by manufacturers surged 13.7 percent to 3.86 trillion yen, which compares with zero growth in the nonmanufacturing sector at 6.75 trillion yen.
Sales grew 7.2 percent to 336.96 trillion yen in the three months to June.
"Higher costs have not translated into lower profits as companies have been passing on those costs (to consumers). Economic normalization (from antivirus steps) has also removed uncertainty over the outlook, prompting companies to become more willing to spend," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc.
Maruyama said gross domestic product for the April-June period will likely be revised upward to an annualized real 2.6 percent expansion from its preliminary reading of 2.2 percent.
A ministry official said the latest results are "in line with the view that the economy is recovering moderately. We need to closely watch the impact of rising prices and supply constraints on corporate activity."
The Cabinet Office is scheduled to release revised GDP data on Sept. 8 by taking into account the latest capital spending figure.
Japanese companies are known to hoard cash, taking a cautious stance on capital spending. The level of such spending has not recovered to pre-pandemic levels in 2019, the data showed.
For the fiscal year ending in March, Japanese companies had a record 516.48 trillion yen in internal reserves, topping the 500 trillion yen mark for the first time. Such earnings continued to grow for a decade.
The building up of reserves may also mean that companies are not optimistic about the economic outlook, as the prospect of aggressive rate hikes by major central banks has raised concern about slower global economic growth.
"Economic growth may slow in the coming quarters but we don't expect to see negative growth (for the Japanese economy)," Maruyama said.
The ministry surveyed 32,822 companies capitalized at 10 million yen or more, of which 22,473, or 68.5 percent, responded.
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