TOKYO: Japanese companies increased investments in the three months through September, pointing to stronger-than-expected resilience in corporate confidence and supporting views that the Bank of Japan (BoJ) may raise rates sooner rather than later.
Capital expenditure on goods excluding software gained 0.8% in the quarter from the previous period, led by manufacturers, the Finance Ministry reported yesterday.
The reading compared with a 0.2% drop in corporate spending reported last month in the initial reading of gross domestic product (GDP).
Compared with a year ago, spending excluding software rose a more-than-forecast 9.5% while investment including software gained 8.1%. The results will be incorporated into revised GDP figures due for release on Dec 9.
Preliminary data showed that GDP grew at an annualised pace of 0.9% in the three months through September, slowing from the previous quarter, while slightly topping the consensus estimate.
The data also followed Tokyo inflation accelerating faster than expected last month.
“Combined with recent price data, the BoJ is in a position to be able to raise interest rates again in December,” said Shinichiro Kobayashi, chief economist at Mitsubishi UFJ Research and Consulting.
“I don’t think they will wait until next year because the risks from the Trump administration’s tariffs and other policies will increase.”
The initial GDP reading showed that private consumption was a key driver of growth in the third quarter.
Stronger signs for the domestic economy and persistent inflation are fuelling speculation that the BoJ may raise its benchmark interest rate as soon as Dec 19, when the policy board concludes its next meeting.
BoJ governor Kazuo Ueda said in an interview with the Nikkei newspaper published last Saturday that interest rate hikes are “nearing” as inflation and economic trends develop in line with the central bank’s forecasts. The BoJ’s outlook report in October said “business fixed investment has been on a moderate increasing trend” as corporate profits have improved and business sentiment has stayed at a favourable level.
Yesterday’s report also showed investment excluding software for manufacturers gained 3.7% compared to the previous quarter, while it decreased 0.7% for services.
Overall business investment in the third quarter was stronger than expected, with the strength in manufacturing suggesting some bright spots for Japan’s economy.
The spending came despite corporate profit falling the most since the first quarter of 2022 on a quarter-on-quarter basis.
Profits fell with automakers facing stiffer competition abroad as they increased research and development spending, while the energy industry suffered from a fall in oil prices, the Finance Ministry said.
“It was a surprise that profits among manufacturers took a plunge but overall, capital investment remains strong,” Mitsubishi UFJ’s Kobayashi said. — Bloomberg
