— Bloomberg
TOKYO: Japanese businesses trimmed capital spending over the summer after five straight quarters of gains, in a sign of cooling corporate sentiment as higher US tariffs take a toll on a sputtering economy.
Capital expenditure on goods, excluding software, edged down 0.3% from the previous quarter in the three months through September, even as corporate profits jumped by the most in two years, the Finance Ministry reported yesterday.
In the preliminary gross domestic product (GDP) report, corporate investment was reported to have expanded by 1%.
Yesterday’s figures will be factored into revisions made to third-quarter GDP data due on Dec 8.
The preliminary report showed that the nation’s economy contracted 1.8% from the previous quarter, the first decline in six quarters.
“Looking at the downward revision in capital investment alone, there’s a good chance the overall growth rate will be revised deeper into negative territory,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
He saw the revised business spending in the GDP report getting lowered to around zero, following Monday’s data.
Prime Minister Sanae Takaichi last month unveiled the largest stimulus package for the economy since pandemic restrictions were eased, allocating roughly 1.6 trillion yen to support business spending.
The government highlighted artificial intelligence, chips and shipbuilding among sectors where it aimed to drive further investment with an eye on economic security as well as supporting growth.
The latest report showed investment, including software, rose 2.9% compared with a year earlier, weaker than a median estimate of 6%.
While sales only inched up 0.5% from a year earlier, profits jumped 19.7%. That jump offered hope that companies will continue to raise wages, a key factor watched by the Bank of Japan (BoJ) as it considers the timing of its next interest rate hike.
Still, the paring back of investment also points to growing caution in the corporate sector.
A slide in corporate spending partly reflects rising caution among Japanese firms as they cope with challenges, including US President Donald Trump’s tariffs.
Under an agreement reached in July and implemented in September, Washington fixed tariffs on imports of all Japanese goods at 15%.
While that rate is lower than the initially threatened 25%, it’s still well above levels before Trump began his second term.
Japan’s exports to the United States fell by more than 10% from a year earlier during the summer period.
Stronger corporate activity would be welcomed by the BoJ as it seeks to confirm a virtuous cycle linking rising wages to demand-driven inflation.
After securing the biggest wage gains in 34 years in negotiations that concluded in March, the nation’s biggest trade union federation has set the same targets for the coming round of talks.
In its latest outlook report, the BoJ said nominal wages are expected to keep rising as labour shortages force employers to compete for staff, although the pace may slow owing to fewer increases of women or elderly workers. — Bloomberg
