TOKYO (AP) — Japan's business investment shrank at its fastest pace in more than five years during the fourth quarter, the government said Wednesday, fueling worries that world's second-biggest economy may be entering a recession.
Capital spending, including investment in plant, equipment and software, declined 7.7 percent in the October-December period from a year earlier, the Ministry of Finance said. That was its biggest fall since the third quarter of 2002, when it dropped 12.2 percent.
The ministry's quarterly economic survey also showed Japanese companies' profit fell for the second straight quarter, declining 4.5 percent from a year earlier, the sharpest drop since April-June 2002.
Higher crude oil and other raw material prices pushed up costs for companies, which weighed on their profits, the ministry said.
The figures contradict the government's view that capital spending and industrial production remain healthy.
''Frankly speaking, these results are fairly bad,'' said Lehman Brothers economist Hiroshi Shiraishi. ''The Japanese economy is on an unstable footing and its outlook is increasingly gloomy.''
Shiraishi said the government's reading for the gross domestic product growth in October-December will be cut to somewhere between 1.6 percent and 2.3 percent — down from the preliminary estimate of 3.7 percent.
Analysts said high material costs are hurting profits and companies may need to cut jobs and wages. That in turn is likely to hurt consumer spending.
A slowdown in the U.S. economy is also fanning concerns about weaker demand for exports, a vital part of Japan's economy.
''The risk of recession is higher than thought,'' said BNP Paribas economist Yoshimasa Maruyama.