Japan's Corporate Capital Spending Up 1.6% in April-June Quarter

Japanese firms increased their spending on plant and equipment by 1.6% in the April-June quarter compared with the same period last year, according to data released by the Ministry of Finance on Tuesday. The uptick signals that domestic demand continues to provide a solid foundation for the world's fourth-largest economy.

The capital expenditure figure marks a clear improvement over the near-flat result seen in the previous quarter. On a seasonally adjusted quarterly basis, spending grew by 1.5%.

The data also revealed that corporate sales rose 5.9% year-on-year during the quarter, while recurring profits jumped a robust 24.6%. These figures are a key gauge of domestic demand-led growth and will feed into the revised gross domestic product (GDP) calculations due on September 8.

Preliminary data released last month showed the economy expanded at an annualised rate of 1.1% in the quarter, a slowdown from 1.9% in the preceding three months, largely due to softer household and business spending. The stronger capex numbers could prompt an upward revision to that figure.

The resilient investment climate is likely to strengthen the case for the Bank of Japan (BOJ) to raise its policy interest rate at its next board meeting on September 18. Policymakers have been watching for signs that domestic demand can sustain growth as the central bank normalises monetary policy.

Companies have maintained a generally bullish outlook on spending in recent years, driven by appetite for investment in information technology to offset a persistent labour crunch in Japan's fast-ageing population.

The government has also pledged to use fiscal spending to spur private investment, arguing that stronger capital expenditure is essential to increasing growth potential and improving productivity. That pledge focuses on sectors deemed critical to long-term growth, including artificial intelligence, semiconductors, advanced manufacturing, and energy infrastructure.