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Ministry of Finance Enterprise Investment survey data released yesterday showed a decline of 25.33% Y/Y in investment by Japanese corporations in Q1 as the stagnation in primary industry has curtailed spending.

Last Friday we put up a note in which we argued that the optimism furled by a significant month-over-month sequential industrial production improvement in April  

 (interpreted as signaling a bottom by many, though not us) , did nothing to indicate that positive momentum was anywhere on the horizon. This new data point, while somewhat stale,  continues to support our negative bias.  With inventory stockpiles depleted through months of activity in some basic industry facets stretching back into Q4 09 it is still premature to categorize April production as a recovery signal without  a sizeable corresponding uptick in investment or exports -neither of which has materialized.

South Korea in contrast, has begun to post improving capex figures. FKI investment survey data registered at -12% Y/Y for April and is forecast to be in single digits for May. South Korea's Q1 average investment level also sank below 20% Y/Y but, with a much more severely contracted credit market and a battered Won, the commitment to investment and improvement by corporate leaders there looks tenacious when compared to their Japanese competitors.

Economics 101 suggests that pulling investment during down cycles ultimately hampers recovery. For Japan's corporate leaders, with the "lost decade" still fresh in their minds, perhaps apathy has become normal.

Andrew Barber

Director

RUNNING SLOWER TO CATCH UP - japan1