By Kantaro Komiya

TOKYO (Reuters) -Japanese companies increased spending on plant and equipment for a fifth straight quarter in April-June as business sentiment remained resilient despite rising costs, China’s COVID lockdowns and supply chain disruptions.

Robust corporate spending is offering some encouragement for Japan’s growth outlook even as a global economic slowdown and domestic COVID-19 flare-ups threaten to weigh on near-term demand.

“While the level of capital expenditure is not overly strong compared to pre-pandemic times, companies finally started to boost spending that were kept during the past two years, thanks to an eased COVID-19 situation,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Capital expenditure in the second quarter rose 4.6% from the same period last year, Ministry of Finance (MOF) data showed on Thursday.

The pace of spending picked up from a 3.0% year-on-year increase in the first three months of this year.

The data will be used to calculate revised gross domestic product (GDP) figures due on Sept. 8. A preliminary estimate last month showed the world’s third-largest economy expanded 2.2% in the second quarter.

Thursday’s solid data may bring Japan’s revised April-June GDP growth slightly upward, up to an annualised 2.5%, Minami said.

Manufacturers’ business spending advanced 13.7% from a year earlier, while that of service-sector firms remained flat, the MOF data showed.

On a seasonally-adjusted quarterly basis, capital expenditure expanded 3.9% in April-June from the prior quarter, in which both manufacturers and service companies increased spending.

“Manufacturers kept spending even amid headwinds from energy inflation, but non-manufacturers’ expenditure was limited, likely because the government’s relaxed stance on COVID-19 curbs was still unclear during April-June,” said Masato Koike, senior economist at Dai-ichi Life Research Institute.

On the outlook, service companies will raise their investments on hopes of further economic reopening from COVID curbs, while manufacturers’ spending could slow on worsening global prospects, Koike added.

Japan’s manufacturing activity grew at its weakest rate in 11 months in August, a separate private-sector data showed on Thursday.

The MOF data showed corporate recurring profits rose 17.6% in the second quarter from a year earlier to 28.3 trillion yen ($203 billion), the largest quarterly profits since records began in 1954. Sales were up 7.2%.

Japanese firms reported recurring profits of 83.9 trillion yen for the fiscal year that ended in March, also a record, the MOF said.

The yen’s decline has affected corporate profits, an MOF official told reporters, saying it benefits exporters but increases imported raw material costs for companies operating in Japan.

($1 = 139.3800 yen)

(Reporting by Kantaro Komiya; Editing by Sam Holmes)

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