Japan's Capital Spending:

 https://mainichi.jp/english/articles/20210901/p2g/00m/0bu/012000c

Article:

TOKYO (Kyodo) -- Capital spending by Japanese companies rose 5.3 percent in the April-June quarter from a year earlier, the first increase in five quarters, rebounding from last year's sharp fall caused by the coronavirus pandemic, government data showed Wednesday.

Investment by all nonfinancial sectors for purposes such as building factories and adding equipment totaled 10.15 trillion yen ($92 billion), marking the fastest growth since a 7.1 percent gain logged in July-September of 2019, the Finance Ministry said.

Capital expenditure by manufacturers grew 4.0 percent to 3.40 trillion yen, as telecommunication equipment makers spent more to strengthen their production capacity for items such as semiconductors amid a global chip shortage.

Ideas:

No doubt as companies decreased their capital spending in the spring of 2020 they came back and made up for it in the spring of 2021.

But even a 5.3 percent increase might not seem like that much if its just being compared to a year earlier. But it was largest increase since 2019.

And at the same time it must be remembered that not all companies spend at the same time, and as such is not a linear increase, meaning some companies spend and some companies wait.

So yes, the pandemic might have forced some companies to wait but at the same time maybe some companies had no intention of capital spending until 2021.

While telecommunication companies saw the need to increase their capacity it remains to be seen if the supply is there amid the chip shortage, meaning in the overall supply chain are there enough resources available to meet demand.

Article:

In the nonmanufacturing sector, investment gained 5.9 percent to 6.75 trillion yen. Spending from the services and construction sectors expanded over 30 percent to lead the increase.

Seasonally adjusted capital expenditure by all nonfinancial sectors, including spending on software, rose 3.2 percent from the first quarter of 2021, up for the second straight quarter.

"Manufacturers have increased their appetite for investment since they had postponed capital spending due to the pandemic in fiscal 2020" through March, said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Ideas:

One strategy ideas has always been to invest when business conditions are not so good so that when the business environment begins to improve you are better positioned than your competitors to meet demand when the environment does improve.

So some companies in the services and construction sectors might be using the strategy to be better positioned when the Japanese economy really comes out of the pandemic.

Spending on software seems to be a never ending situation as companies continue to upgrade and meet the needs of customers and stay ahead of the competition in the 21st century.

Manufacturing seems to be one part of the Japanese economy that was not as hard as the services sector and or they were able to bounce back quicker and as such have increased their capital spending.

But again some might have waited and some maybe weren't even thinking of capital spending until 2021.

Article:

Minami added that firms' willingness to invest was also stimulated by an accelerated recovery of demand in U.S. and European economies on the back of progress in vaccine rollouts.

Taking into account the latest capital spending figures, the Cabinet Office is scheduled to release revised gross domestic product data for the same quarter on Sept. 8.

Preliminary data showed the country's economy grew an annualized real 1.3 percent in the three-month period, the first expansion in two quarters, despite sluggish consumption under the third virus emergency.

Ideas:

Yes, as demand in the US and the EU increased most likely many Japanese manufacturers felt it was the right time to get back into the game. 

And some maybe did postpone investment due to a decrease in demand in the EU and the US, but some maybe didn't have any plans in the spring of 2020 to invest and had already planned their investments for the spring of 2021.

While manufacturing is a very important part of the Japanese economy and as its very closely related to exports to the EU, China, and the US, its not all of the Japanese economy and it can't be seen as being able to grow the Japanese economy only.

And consumption or consumer spending, its estimated, make up 50 percent of Japan's GDP.

For the economy to really grow consumer spending has got to improve and improve significantly. But that is not going to happen most likely until the pandemic is over and or more people become completely vaccinated.

Article:

Minami forecasts the April-June GDP growth rate will be revised upward to an annualized 2.2 percent, as growth in the business investment component is expected to be upgraded from 1.7 percent to 2.9 percent.

Pretax profits of domestic companies covered in the survey rose 93.9 percent from the previous year to 24.07 trillion yen from a year earlier, up for the second straight quarter to post the steepest increase since a 163.8 percent jump marked in January-March 2010 when the economy was recovering from the global financial crisis.

Sales rose 10.4 percent to 314.41 trillion yen, up for the first time in eight quarters. Sales by manufacturers and nonmanufacturers were up 20.1 percent and 6.8 percent, respectively.

Ideas:

Again while business investment is improving and exports are improving they are only part of the mix of the Japanese economy.

Yes the economy might see some growth but it will be limited and there is only so much investments that companies can do and only so much exports can do due to a limit on production capacity.

So growth most likely will be somewhat limited until consumer spending can get to some kind of "new normal" but not reach the pre-pandemic level.

Its good that companies are able to post profits the question is do companies have the appetite to increase salaries of their workers, which is what is really needed for consumer spending to increase.

Sales increases are good but again what are companies going to do in the future besides capital spending.

Part of the ABE plan was always to get companies to use the huge savings they had in banks and invest in their employees by giving them raises and then as employees felt better about their salaries and they had more disposable or extra income they might save some of it and they might use it or spend it in the economy has a way to increase consumer spending and maybe even contribute toward the Bank of Japan's goal of increasing inflation to the 2.0 percent level which so far has not been achieved.

Article:

The ministry surveyed 32,798 companies capitalized at 10 million yen or more, of which 22,565, or 68.8 percent, responded.

The ministry's corporate survey data for fiscal 2020 through March, also released Wednesday, showed Japanese companies' retained earnings totaled 484.36 trillion yen, up 2.0 percent from fiscal 2019 to hit a record high for the ninth straight year.

Meanwhile, their annual sales, pretax profits and business investment declined 8.1 percent, 12.0 percent and 5.0 percent, respectively, underscoring Japanese firms' tendency to give priority to hoarding funds to prepare for future crises.

Ideas:

And that is exactly while the Bank of Japan, for companies, decided to use a minus interest strategy or a "use it or lose it' strategy to get companies to use the huge savings they have instead of just having it sit it the banks and give their employee salary increases to help the economy or help consumer spending in the economy.

Of course because of the pandemic the hording of funds might have been a good strategy but at the same time they still could have increased the salaries of their employees too.

The Bank of Japan can't force companies to increase salaries but they have tried the minus interest rate strategy for Japanese companies and their funds over the long term as an incentive to again "use them or lose them".

Have a nice day and be safe!