Japan Q2 capex rises strongly in promising sign for domestic demand

TOKYO, September 1 ------ Japanese companies raised spending on plant and equipment in April-June by 7.6 per cent from the same period a year earlier, Ministry of Finance data showed on Monday, signaling that solid domestic demand was underpinning the country's fragile economic recovery. The expenditure data could support the case for the central bank to raise interest rates again later this year.

However, economists warn that the impact of U.S. tariffs is likely to become more pronounced from the third quarter onward, casting a shadow over business investment - a key engine of domestic demand-driven growth. Capital spending in the second quarter compared with the previous quarter's 6.4 per cent gain. It grew 1.6 per cent on a seasonally adjusted quarterly basis. The data will be used to calculate revised gross domestic product figures due on September 8.

Preliminary data last month showed Japan's economy expanded by a faster-than-expected 1.0 per cent on an annualized basis in the second quarter, helped by surprisingly resilient exports and capital expenditure.

Monday's capex data also showed corporate sales rose 0.8 per cent in the second quarter from a year earlier, and recurring profits increased 0.2 per cent. Capital expenditure has remained strong in recent years as companies, backed by robust profits, ramp up technology investment to offset a chronic labor crunch. But economic data released in the past few weeks suggest that U.S. tariffs have started to take a toll on corporate activities in July, potentially squeezing profits ahead and slowing business spending.

Exports in July logged the biggest monthly drop in about four years due to price cuts by Japanese automakers to absorb tariff costs, while industrial output slumped more than expected due partly to a 6.7 per cent decline in automobile production. While the Japan-U.S. trade agreement in July is likely to lower U.S. tariffs on Japanese automobiles to 15 percent, there is uncertainty on when the cut will apply as President Donald Trump has yet to sign an executive order.

Source: channelnewsasia.com