Japan’s corporate expenses grows

Japanese firms increased their spending on factories and equipment for a seventh consecutive quarter, according to new data released by the country’s Finance Ministry. The report provides relief to policymakers, who are counting on a private demand-led recovery from the pandemic. The capital expenditure in October-December increased by 7.7% from the same period in the previous year, although this rate has slowed from the 9.8% gain in the third quarter of 2022. Despite this, the boost to output capacity drove higher capital expenditure requirements, with manufacturers of chemicals and metal products, as well as service-sector firms, preparing for an uptick in demand.

This data will be used to calculate revised gross domestic product (GDP) figures, which are due on March 9. Preliminary estimates showed that Japan’s economy rebounded an annualized 0.6% in the fourth quarter, but weaker-than-expected GDP growth was caused by a decline in capital spending. This has raised doubts about whether the world’s third-largest economy can achieve growth through private-sector investment and wage hikes, which would in turn boost consumption.

The report showed that quarter-on-quarter, seasonally-adjusted capital expenditure rose 0.5%. While corporate recurring profits fell 2.8% in the final quarter, they remained the second-largest on record for the fourth quarter, reaching ¥22.4tn. However, this was down for the first time in eight quarters due to large profit declines in manufacturers such as chemicals and petroleum/coal industries caused by spikes in raw material prices, which overwhelmed post-COVID gains at service-sector firms such as transportation.

Japan has faced several setbacks during the last quarter of 2022, including the global slowdown, whose effects have gradually become apparent. Other central banks have aggressively raised interest rates, worsening the economic climate for Japan’s business partners. The falling yen, which inflated import costs, has been another headache for the Japanese economy. While the various factors combined could mean that the central bank may remain cautious about pivoting away from supporting the economy, experts remain optimistic that capital spending will hold firm and lack strength until later in the coming fiscal year.