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Japanese firms pared spending on factories and equipment for the first time in two years in the fourth quarter in a bid to cut costs as profits fell by almost one-third.

The 14.5% drop in capital spending in the fourth quarter from a year ago suggests that the world’s second-biggest economy may have shrunk more than forecast, economists said. In a sign that companies have been slow to trim costs and might have to make further cuts, profits fell 31.4% on a 3.8% slide in sales, Ministry of Finance figures showed.