Japan corporate capex drops for first time in four years amid tariff fears
The country aims to double annual corporate capital expenditure to 200 trillion yen by 2040
JAPANESE corporate spending on plant and equipment dropped 0.2 per cent year on year in the fourth quarter, Ministry of Finance data showed on Tuesday (Mar 4), marking the first quarterly fall in nearly four years amid growing uncertainties over the global economy.
Although firms remain keen for capital expenditure due to robust profits, intensifying labour shortages have served as a bottleneck, restricting investment projects in sectors such as construction.
“I don’t think the latest data suggests any change to the solid underlying trend for corporate spending,” said Saisuke Sakai, chief economist at Mizuho Research & Technologies.
“But it’s not as strong as we expected either. Going forward, growing risks from US President Donald Trump’s tariff policies could also turn businesses cautious about fresh investments,” he said.
The tepid expenditure data, which will be used to calculate revised gross domestic product figures due on Mar 11, could potentially dampen the Bank of Japan’s expectations that solid domestic demand would warrant a further rise in interest rates.
Preliminary data last month showed Japan’s economy expanded an annualised 2.8 per cent in the fourth quarter, accelerating from growth of 1.7 per cent in the previous quarter helped by improved business spending and a surprise increase in consumption.
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The dip in fourth-quarter capital spending contrasted with the previous quarter’s 8.1 per cent gain. Capital spending last fell year on year in the first quarter of 2021.
On a seasonally adjusted quarterly basis, it grew 0.5 per cent in the fourth quarter.
Tuesday’s capex data also showed corporate sales rose 2.5 per cent in the fourth quarter from a year earlier, and recurring profits increased 13.5 per cent.
Capital expenditure, a crucial measure of domestic demand-led economic growth, has remained strong in recent years as companies ramp up technology investment to offset a chronic labour crunch from a rapidly ageing population.
Japan’s exit from decades of deflation has allowed companies to raise prices to pass on rising costs, which in turn boosts profits to fund more investment.
But the broadening scope of US tariffs on imports, including steel, aluminium, automobiles, pharmaceuticals and semiconductors, has sparked concerns in Japan that they could potentially disrupt global supply chains across various industries.
Trump has also pressed Japan to tackle its US$68.5 billion annual trade surplus with the United States.
Japan aims to double annual corporate capital expenditure to 200 trillion yen (S$1.8 trillion) by 2040. The country’s capital spending exceeded the 100-trillion-yen threshold in the year ended last March for the first time in 32 years, following decades of deflation.
Last week, Prime Minister Shigeru Ishiba’s economic advisory panel called for “bold policy steps” to promote domestic investments as the United States and other global powers scramble to rebuild industrial supply chains. REUTERS
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