Japan business spending points to upward GDP revision but profits tumble

By Stanley White TOKYO (Reuters) - Japanese capital expenditure accelerated in the first quarter from the prior three-month period, suggesting gross domestic product growth could be revised up, but analysts remain wary about the outlook given growing pressure on corporate earnings. Indeed, corporate profits in January-March fell at the fastest pace in more than four years, which could encourage Japanese companies to cut back on future capital expenditure plans. The data suggests that revised GDP due on June 8 may show Japan's economy in the Jan-March quarter grew more than first reported, but a host of other indicators have pointed to a recovery straining against weak consumption and exports. Japanese Prime Minister Shinzo Abe is expected on Wednesday to delay an increase in the nationwide sales tax as worries about weak consumer spending undermine the government's argument that its policies are working to reflate the economy. "I expect a slight upward revision to GDP, but that doesn't mean everything is rosy," said Hiroaki Muto, economist at Tokai Tokyo Research Center. "Earnings growth has peaked out, because companies are no longer benefiting from a weak yen. If profits continue to fall, companies could put the brakes on capex." Capital expenditure in January-March rose 4.2 percent year-on-year, slower than a 8.5 percent annual gain in October-December, finance ministry data showed on Wednesday. However, capital expenditure rose 1.4 percent from the previous quarter on a seasonally-adjusted basis after excluding spending on software, which marked a recovery from a 0.1 percent decline in October-December. A preliminary estimate showed GDP in the January-March expanded an annualised 1.7 percent. The capital expenditure component of GDP fell 1.4 percent from the previous quarter. Corporate profits fell 9.3 percent in January-March from a year ago, the biggest decline since October-December 2011, finance ministry data showed on Wednesday. (Editing by Shri Navaratnam)