Japanese companies increased capital spending 10.2 per cent in the first quarter from a year earlier, the fastest since 1997, which may prompt the government to raise its estimate for growth in the world's second-largest economy.

The growth was higher than the 5.1 per cent in the fourth quarter and the median 7.5 per cent gain predicted by six economists surveyed by Bloomberg News. Capital spending rose 2.9 per cent from the previous quarter, the Ministry of Finance said in a report released in Tokyo.

The larger-than-expected gain may prompt the government to raise its estimate of first-quarter growth next week, said economists including Mamoru Yamazaki. Spending by companies including Sharp and Pioneer Corp accounted for almost a third of Japan's 5.6 per cent annual pace of economic growth in the first quarter, the fastest among the Group of Seven nations.

"It wouldn't be surprising if annual growth were revised to around 6 per cent," said Yamazaki, chief economist at Barclays Capital Japan. "We expect capital spending to continue growing through next year."

The yield on the 1.6 per cent bond due in June 2014 rose 1.5 basis points to 1.580 per cent as of 4:56 pm yesterday in Tokyo after rising as much as 3.5 basis points. A basis point is 0.01 of a percentage point.

Pretax profit from operations rose 24.6 per cent from a year earlier, the biggest gain since 2000, yesterday's report showed. Sales rose 2.4 per cent. Manufacturers raised spending by 19.7 per cent and non-manufacturers by 6.3 per cent.

The report confirms that Japan's recovery is spreading from large manufacturers to service providers and smaller companies, said Richard Jerram, chief economist at ING Securities Japan Ltd.

"We have a really strong capital spending recovery in response to the surge in corporate profitability," he said. "Profit recovery is not just among the big export companies, it's very broadly spread."

Pioneer, which makes plasma displays for flat-screen televisions, said this month it is speeding up the start of a new production line with an annual capacity of more than 300,000 panels by more than a month to meet demand.

The Ministry of Finance surveys companies with capital of more than 100 million yen (US$900,000) on categories including sales, current profit, capital spending and inventories.

The survey is used to re-calculate the capital spending component of the government's gross domestic product report.

Japan will probably raise its estimate of first-quarter growth to a 6.3 per cent annual pace, says Atsushi Takeda, a senior economist at Mizuho Research Institute. Morgan Stanley Japan Ltd predicted the economy to grow at a 7.6 per cent pace, said economist Osamu Tanaka.

Matsushita Electric Industrial Co and Toray Industries Co are also planning to boost production to meet higher demand for display panels. The two companies said last month they plan to build in Amagasaki, Japan the world's largest plant for screens to be used in television screens and monitors.

Rising spending is fueling imports as companies buy more machinery and equipment from overseas. Japan's trade surplus narrowed for a second month in April as imports rose to a record US$34.9 billion from March, according to seasonally adjusted government figures last month.

Matsushita forecasts global demand for plasma display panels to almost quadruple to about 10 million units in 2008 as consumers buy new television sets to watch sporting events such as the Athens Olympics this year, Germany's World Cup soccer tournament in 2006 and the Beijing Olympics.

Capital spending will probably slow after being one of the chief contributors to Japan's economic expansion, economists said.

"It will be difficult for the economy to maintain this pace of spending growth," said Kiichi Murashima, a senior economist at Nikko Citigroup Ltd, in Tokyo.

(China Daily 06/04/2004 page11)