Japan's Corporate Spending Rises, Boosting Economic Growth Prospects
Japanese companies increased their spending on plant and equipment by 7.4% year-on-year in the second quarter of 2023, according to data released by the Ministry of Finance. This positive trend suggests that the country's economy may be on track for a domestic-led recovery.
The robust capital expenditure data is expected to be factored into the revised gross domestic product figures due on September 9th. This could strengthen the case for the Bank of Japan to raise interest rates further in the coming months.
Earlier data indicated that Japan's economy expanded by an annualized 3.1% in the second quarter, rebounding from a slump at the beginning of the year due to a surge in consumer spending.
Capital spending, which grew 1.2% on a seasonally adjusted quarterly basis, accelerated from the previous quarter's 6.8% increase.
The data also revealed that corporate sales rose 3.5% year-on-year in the second quarter, while recurring profits increased by 13.2%.
Capital expenditure is a crucial indicator of domestic demand-led economic growth. Policymakers are counting on business investment to drive the world's fourth-largest economy forward, as exports face challenges due to uncertainties surrounding the U.S. and Chinese economies.
Despite these external headwinds, business spending in Japan has remained robust in recent years, fueled by companies' need to invest in order to address the chronic labor shortage caused by the country's rapidly aging population.