Capital spending excluding software rose 4.9 percent from a year earlier, after declining 11 percent in the previous quarter, the Finance Ministry said today in Tokyo. The first gain in three quarters compared with a median estimate of a 7.4 percent decline in a Bloomberg News survey of six economists.

A weakening in the yen, gains in industrial production and retail sales, and increased government spending on reconstruction from last year’s earthquake may drive an expansion this quarter. Today’s report may force the Cabinet Office to revise upward preliminary data that showed gross domestic product shrank an annualized 2.3 percent in the final three months of last year.

“Reconstruction demand was probably the biggest support for the increase in capital spending,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute. “The upward trend in business investment is likely to continue as companies become more optimistic as rebuilding demand materializes more and the yen weakens.”

The Nikkei 225 Stock Average rose 1 percent as of 9.52 a.m. in Tokyo on better-than-expected U.S. economic data, the Japanese spending report and weakness in the yen.

‘Very Strong’ Data

“Given today’s very strong capital investment data, there is no doubt that the fourth-quarter GDP growth will be revised upward,” said Yuichiro Nagai, a Tokyo-based economist at Barclays Capital.

The yen traded at 81.21 per dollar, compared with a postwar high of 75.35 on Oct. 31. The currency has declined, aiding exporters, since the Bank of Japan announced extra monetary stimulus and set an inflation goal on Feb. 14.

Some of the boost to spending came from chemical and transport equipment companies rebuilding factories damaged in last year’s disaster, the finance ministry said. It also cited the construction of supermarkets and convenience stores, including in quake-affected areas.

The government has allocated about 21 trillion yen ($260 billion) in stimulus since the March 11 disaster. The Bank of Japan (8301) has also expanded monetary stimulus to 65 trillion yen to support growth and drive down the value of the yen.

Bridgestone Corp. (5108), the world’s biggest tiremaker by market value, said on Feb. 16 that it will spend about 4.7 billion yen to boost output capacity at its plants in Fukuoka and Saga, western Japan. Toyota Motor Corp. (7203), Asia’s largest carmaker, said on Feb. 7 that the company raised its profit forecast 11 percent for the year ending March 31.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

http://www.bloomberg.com/news/2012-03-01/biggest-japan-spending-jump-in-five-years-adds-to-signs-economy-rebounding.html

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