Japan’s Capital Spending Jumps as Firms Surprisingly Bullish

Japanese businesses increased investment in the final quarter of 2023, an indication that firms were more bullish than indicated in overall growth figures for the period released last month.

(Bloomberg) -- Japanese businesses increased investment in the final quarter of 2023, an indication that firms were more bullish than indicated in overall growth figures for the period released last month.

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Capital expenditures on goods excluding software rose 8% in the three months through December compared with the previous quarter, the finance ministry reported Monday. From a year earlier, such outlays gained 11.7%.

The data will be factored into revised gross domestic product figures for the period. The initial reading showed GDP unexpectedly shrank at an annualized pace of 0.4%, tipping the economy into a technical recession.

The figures come as the Bank of Japan has repeatedly signaled it’s getting closer to conducting Japan’s first rate hike since 2007. Governor Kazuo Ueda Thursday pledged to closely watch the economy after spending by businesses and consumers has shown signs of weakness.

Corporate profits rose 13% from a year earlier, weaker than the consensus estimate of 21%. With annual wage negotiations underway, authorities are watching for signs corporations are committing to channeling more profits into the pockets of workers, a development that might trigger a virtuous wage-price cycle.

The indications of resilience in the corporate sector will bolster bets on the BOJ making the move this month or next.

In a preliminary gross domestic report last month, capital spending declined by 0.4% on an annualized basis in its third straight quarterly fall. That finding showed there’s a discrepancy with the BOJ’s Tankan survey results, which indicated that large companies were planning to increase spending this fiscal year by 13.5%.

Economists have cited a rise in labor and material costs as a potential reason for businesses pushing back their investment as they usually have a fixed amount of funding in their annual budgets.

At the same time, labor shortages and concerns over supply chain integrity could help support investment, the BOJ said in its quarterly outlook in January.

“Given the very strong plans for business investment, it will materialize at some point,” Ueda told reporters Thursday in Sao Paulo after meeting with his G-20 counterparts. “Japan’s economy is recovering gradually.”

(Adds details from report)

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