Japanese companies' spending seen picking up at home: UBS

[TOKYO] Japanese companies are increasing the portion of their investment in Japan, following the yen's fall against the dollar, UBS Group AG says.

Japanese domestic capital investment rose 5.5 per cent in the third quarter of last year from a year earlier, according to finance ministry data. The ratio of domestic investment to foreign investment has climbed from the second half of 2013, Daiju Aoki, a UBS economist, wrote in a research note yesterday, with the bank forecasting capital expenditure will grow 2.3 per cent this year.

Japanese companies shifted production overseas in recent years to take advantage of higher international growth rates and escape the strong yen, which reached record highs after the global financial crisis. The government and the Bank of Japan have called for companies to increase spending in Japan to pull the economy out of a recession last year and stimulate growth.

"Although companies are not reducing external investment, there are early signs of more active domestic investment in relative terms, and overseas investment ratios have begun to fall," Aoki wrote.

Since the start of 2014, domestic investment in chemical products, transportation, electrical and general machinery industries has risen faster than overseas investment, the report said. The four industries account for roughly 50 percent of domestic investment in Japan and 80 percent to -90 percent of spending overseas by Japanese companies, according to UBS.

If the yen continues to be weak and Japan's economic recovery continues, the weighting of international spending is likely to keep declining, Aoki wrote.

"This should be seen simply as a scenario of accelerating domestic capex," Aoki wrote, and overseas manufacturing won't be relocated back to Japan to the extent that it could be being called a 'return to domestic manufacturing.'

Bloomberg