Businesses cut spending for a ninth quarter as the global recession squeezed profits, underscoring the challenge for the incoming government to sustain a recovery from the country's worst postwar slump.
Capital spending excluding software fell 22.2 percent in the three months that ended June 30 from a year earlier, after dropping a record 25.4 percent in the previous quarter, the Finance Ministry said Friday. Profits slid 53 percent.
Sales fell 17 percent, the second-biggest drop on record, indicating global demand hasn't recovered enough to encourage companies to buy more plants and equipment. Sanyo Electric Co. and Seven & I Holdings Co. are among firms scaling back.
"Companies have too many resources, and until that situation changes, they won't have to invest in more equipment and they won't need to hire more people," said Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in Tokyo.
The government will use Friday's report to revise gross domestic product on Sept. 11. Preliminary figures showed the world's second-largest economy grew an annualized 3.7 percent in the three months that ended in June, the first expansion in five quarters. Shiraishi said Friday's numbers may result in a "slight upward revision" to the capital spending component.
Manufacturers cut spending by a record 32.8 percent from a year earlier, Friday's report showed. Service companies reduced investment by 14.3 percent.
"The worst may be over for corporate profits, but levels are still low," economic and fiscal policy minister Yoshimasa Hayashi said Friday in Tokyo. "Firms continue to restrain capital spending."
Sanyo Electric, the world's largest maker of rechargeable batteries, said last month it will close parts of its air conditioner and light-emitting diode businesses and give incentives for workers to retire.