Japan firms step up spending by 3.4% in July-Sept., growth slows
TOKYO (Kyodo) -- Capital spending by Japanese companies from July to September increased 3.4 percent from a year earlier for the 10th straight quarter of gain, but growth slowed further in a worrying sign for the economy, Finance Ministry data showed Friday.
Investment by all nonfinancial sectors for purposes such as building factories and adding equipment totaled 12.41 trillion yen ($84 billion). Capital spending is a key gauge of domestic demand.
The slowing pace of increase from the 4.5 percent in April-June adds a layer of uncertainty to the outlook, despite many firms planning to ramp up spending for the current fiscal year to next March as the shocks of COVID-19 and supply disruptions ease.
Ideas:
Capital spending is never linear, meaning that it doesn't happen every week, every month, or even every quarter, as companies choose certain times a year to spend.
Just because capital spending might have slowed down doesn't mean the economy is getting worse, as companies, again, sometimes wait for a specific date or month to spend on capital investments.
And yes, there might be some companies, due to market conditions, might decide not to spend in this fiscal year, ending in March 2024, but instead wait unit April 2024 to begin their capital spending.
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Transport equipment makers and chemicals firms ramped up investment to boost their output capacity, while service providers also increased spending.
Pretax profits rose 20.1 percent to 23.80 trillion yen, a record for the quarter, helped by the weaker yen, according to the ministry data.
"Companies have bullish capital spending plans (for the current fiscal year) but the actual numbers suggest they remain cautious," said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.
Ideas:
Most companies are cautious, and if an economic or market situation is not in their favor, they might wait to spend.
However, there are some companies, despite the market conditions not being favorable, or the economy not being favorable, think its the best time to spend and then when situations become favorable they are in a better position to take advantage of the market.
Service companies, capital spending is a little tricky and or unclear as what might be capital spending might be operations spending, and for service companies the definitions can become blurred.
For example, is remolding the inside of a department store an operational expense or is it a capital expense?
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"This is because of weakness in the Chinese economy and the lingering impact of parts shortages. Companies are also short on labor, which is negative when they want to boost investment and raise output," Kodama said.
The capital spending figure will be used to revise gross domestic product data for the same period, which will be released next Friday.
Japan's economy shrank by an annualized real 2.1 percent in the July-September period, marking the first contraction in three quarters, hurt by weak capital spending and private consumption.
Ideas:
The weakness with the Chinese economy, of course, is causing concerns for Japanese companies who might need to upgrade their capital situation, such as equipment investments, building investments and so, but because of the uncertainty with the Chinese economy, they might be waiting to see what is going to happen.
Japan's economy, in annualized terms, might have decreased 2.1 percent, but that is an estimation for the rest of the year, if conditions remain the same, which it never does.
Its a one time look at the Japanese economy and the next quarter could be completely different, with improved economic growth.
Private consumption or private spending, is always a challenge as Japanese consumers don't spend like US consumers.
Private spending might be 50% of Japan's GDP or maybe a little more at 60% but that is still lower than consumer spending in the US.
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Kodama expects the GDP figure to be revised upward, though the economy still marked negative growth.
Weakening domestic demand has raised concern about the economy, which has been underpinned by catch-up demand following the removal of anti-COVID-19 curbs.
"The data shows that Japan's economy is recovering moderately," a ministry official said. "We will pay attention to the impact of a slowdown in the global economy and inflation on firms."
Ideas:
In one situation there is weak domestic demand and in another situation the Japan economy is recovering moderately, So which is it exactly, weak or recovering moderately, or a situation where its both.
If you look at the US economy, its the bright light right now for the global economy, as economic growth is up, inflation is down to 2 percent, and jobs are being added at record numbers.
Of course that can't be said about Europe and especially Germany, which has its own domestic challenges.
And not to forget about China and its domestic challenges, which Japanese companies are heavily invested in.
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Sales grew 5.0 percent to 367.74 trillion yen, up for the 10th straight quarter.
It came despite the manufacturing sector reporting its first drop in two quarters. Demand fell for personal computers and smartphones, and overall external demand also weakened amid aggressive rate hikes in major economies to fight inflation and a slowdown in China.
As automakers continued to benefit from the easing of parts shortages, the transport sector was a major winner in terms of sales and pretax profit growth.
Ideas:
Sales growth is always good, but at the same time what about operational expenses such as energy costs and raw materials costs.
Manufacturing, as had been mentioned in many article, has had periods of slowdowns due to supply chain challenges, such as the Toyota group of companies.
Demand might have decreased for personal computers and smartphones, but are these Japanese computers and Japanese smartphones or are the products from overseas being sold in Japan such as at Yodobashi Camera, a major electronics store in Japan.
At Yodobashi Camera, they a complete floor of Apple computers and Apple I phones, which is the most popular products in Japan.
Despite the Toyota group having some challenges, it seems that Japanese automakers are headed in the right direction, with sales up in most of the eight major Japanese automakers.
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Food companies that have been able to pass on increased costs to consumers also reported increased profits.
Rising prices of everyday goods, however, have dampened consumer sentiment and the government has compiled fresh inflation relief measures to ease their pain by cutting fuel costs and seeking to boost disposable income through tax cuts and cash payouts.
The ministry surveyed 32,557 companies capitalized at 10 million yen or more for the quarter, of which 22,920, or 70.4 percent, responded.
Ideas:
For many years, if not decades Japanese food companies were reluctant or even afraid to pass on their increased costs to the customer for fear of losing significant customers.
But now they have no choice as their profit margins have continued to shrink and they need to pass on their costs to stay in business.
Of course the prices of everyday good, including supermarket goods continue to increase and Japan is a resource-poor country, and has to import much of what it needs.
At at the same time consumer sentiment, or how consumers feel, continues to get worse, and its not surprising that they maybe pick and choose what they only need and not buy other products they might want.
Cutting fuel costs is good but is it enough? It might help with home energy costs and gasoline prices, but will it increase the needed disposable income for Japanese families, which might save the relief measures which might have helped instead of spending the extra disposable income in the economy.
Have a nice day and be safe!
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