TOKYO About a quarter of Japanese firms plan to hike capital spending in the next financial year, a Reuters poll shows, a sign of cautiously positive sentiment towards a key engine for the nation's economic recovery.
Robust capital expenditure is seen as critical to Prime Minister Shinzo Abe's goal of sustainable economic growth and the survey comes after a surge in core machinery orders for November boosted hopes that such investment is decisively turning upwards.
The Reuters Japan Corporate survey, conducted Jan 6-20, also showed that 60 percent of firms plan to keep their business investment steady, which would follow an expected rebound in the country's capital expenditure for this financial year.
While the poll did not point to a significant expansion, it comes before many firms finalize plans for the year beginning in April. Japanese companies usually produce conservative capex forecasts at the beginning of a financial year before revising them higher as the year progresses.
For some of the 23 percent of respondents planning to boost investment, Abe's policies or "Abenomics" of bold fiscal and monetary stimulus have started to make their impact.
"While I have doubts about Abenomics, we are noticing that some of our buyers are becoming more positive about fresh investment and as that may lead to an increase in orders we'd like to be prepared for that," wrote an executive at a machinery maker.
Among the 60 percent saying they expect capital spending to be flat, comments seemed to be evenly split between those suggesting they would maintain levels after increases last year and those saying that business was not yet strong enough to justify any significant investment.
For the current financial year, Bank of Japan data shows large firms plan to lift capital spending 4.6 percent, the second year of growth after four years of slides.
The long stretch of declines in capital spending between fiscal 2008 and 2011 led to much factory equipment and software becoming out of date. Of the 263 firms responding to a question on what they would invest in, 59 percent said they plan to upgrade ageing equipment.
"(Companies) are not fully confident about the future of the Japan economy, so I think they're taking a very conservative stance of replacing current facilities rather than investing into new ones," said Bob Takai, chief executive of Sumitomo Shoji Research Institute, who reviewed the survey results.
The question, which allowed for multiple answers, also showed that 47 percent plan to strengthen business operations while 38 percent are looking to invest in new businesses.
The vast majority of respondents to questions on where they would be investing said the bulk of their investment would be in Japan.
Companies that have announced upbeat capex plans include Toshiba Corp (6502.T), which has earmarked 30 billion yen ($290 million) to expand the building that houses one of its NAND chip factories in western Japan. It plans to make a decision on potential spending of up to another 400 billion yen on equipment for the plant by March.
The survey, conducted for Reuters by Nikkei Research, also showed that Japanese companies are not clamoring for a further drop in the yen, which is near a five-year low against the dollar as the Bank of Japan floods the market with yen to halt deflation and spur growth.
Roughly half of respondents to questions on foreign exchange levels said they both expect and hope the yen will be in its current range of 100-105 to the dollar six months from now, while more than 90 percent predict and would like the Japanese currency in the 90-110 range.
The Reuters Corporate Survey polls upper management at 400 companies capitalized at more than 1 billion yen each. The firms are split evenly between manufacturers and non-manufacturers.
It is conducted in tandem with the Reuters Tankan survey which showed Japanese business sentiment improved for a third straight month in January but is expected to slide after a sales tax hike in April.
(Additional reporting by Masatsugu Hisatsune of IFR; Editing by William Mallard and Edwina Gibbs)