Japanese companies’ capital investment rises amid higher profits
Japanese companies increased capital investment in the second quarter amid a substantial rise in profits. The Japan Times reports that spending on capital investment excluding software rose by 2.9% in April–June compared with the previous quarter.
Spending and profit trends
According to Japan’s Ministry of Finance, capital expenditure including software increased by 1.6% year on year. Economists’ median forecast had projected a 0.3% decline.
Sales by Japanese companies rose by 5.9% in the second quarter compared with the same period last year, while current profits increased by 24.6%. The current profit figure substantially exceeded economists’ expectations.
Possible GDP revision
These data likely point to a possible upward revision of Japan’s final second-quarter gross domestic product estimate, which is due to be released on September 8. According to the preliminary estimate, corporate investment declined by 1.2%, while consumer spending was unchanged. As a result, the country’s economy grew more slowly than in the previous quarter.
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Takeshi Minami, chief economist at Norinchukin Research Institute, said that companies outside the manufacturing sector continue to invest in artificial intelligence to reduce labor costs. At the same time, manufacturers are cautious about capital investment because of the situation in Iran, although their profits are rising, he said.
Manufacturers’ caution
Minami believes that the released figures will have a positive effect on GDP data. He also suggested that some postponed investments could gradually be implemented in July–September, despite the likely persistence of tensions surrounding Iran.
Companies are facing rising operating costs, including due to supply chain disruptions linked to the war in Iran. At the same time, the weak yen partly mitigates this impact for exporters. Japan’s manufacturing sector showed growing activity every month since the start of the year.
The results also align with the Bank of Japan’s July Tankan business sentiment survey: large companies forecast capital expenditure growth of 11.5% in the fiscal year ending in March, following an earlier forecast of 3.3%.
