Japan Capital Spending: Updated June 4, 2024.

 

Japan capital spending grows 6.8% in Jan.-March, up for 12th qtr

Article Source:  https://mainichi.jp/english/articles/20240603/p2g/00m/0bu/008000c

Ideas:

Capital spending is not like consumer spending, as companies have to spend a lot on the needed equipment, or new buildings, or new factories for their business.

Large name brand companies of course usually have the resources needed for capital spending but small and midsize companies might not have the available resources and have to limit their capital spending.

Labor shortages might be a challenge for some companies as they might have the labor needed to run the extra machines that a company orders or new factories that a company wants to add.

The weak yen can have some positives and or course it can have some negatives too, such as a weak yen might help Japanese exporters but hurt Japanese importers.

Some time ago, many Japanese companies were reluctant to pass on their increased costs to the next in the supply chain, but these days companies feel they have no choice but to pass on their costs.

The Bank of Japan has to make sure that the yen is maybe balanced to the point, if at all possible, where both Japanese importers and Japanese exporters can see some benefit, but that might not really be possible.

Not to criticize, but it seems there are two competing ideas here. For example the headline reads "capital spending grew 6.8%", while the above line says a"0.8 percent drop in capital investment."

But yes, the latest news indicates the Japanese economy did shrink, again, which it sometimes does, but even a 0.8 percent decrease is not that much for the 4th largest economy in the world.

And, again, the idea that the Japanese economy shrank is not news or not that much of a shock as the Japanese economy has been stagnant for the better part of three decades.

So lets continue on with the idea that capital spending increased and not decreased in the Japanese economy.

But again, there could be a variance between large and small companies, as usual, as the large companies have the needed resources to increase capital spending while the small companies might be limited in how much they can spend on capital spending.

Regarding labor shortages, and robust profits, companies might be increasing wages as a way to reduce labor shortages as new workers or workers looking to change jobs are looking for better pay/wages, as they know companies now are willing to pay more.

Inbound tourism, or foreign tourists going to Japan, might be the main economic driver at this time, as they spend a lot in the Japanese economy, and service sector companies are able to recover from the pandemic, which hit them very hard, compared to the manufacturing sector.

And yes, rising costs, might be the reason for the increase in capital spending as new equipment, new buildings, and so on have seen increased costs most likely due to the weak yen.

And yes, again, maybe many small and midsize companies related to the cost of new equipment, buildings, factories, and so on might have to limit what they spend related to such things.

Again, not to criticize, but the phrase continuing to "recover moderately" seems to used a lot in these articles, as way to make sure the Japanese financial markets remain calm and don't panic.

The main economic slowdowns seems to be in the EU and of course in China, as the US seems to be moving along with minimal disruptions.

The Japanese economy is far from where it should be, but at the same time, its a very stable economy, as its not like Argentina or even like some of the EU countries.

But the Japanese government and the Bank of Japan needs to stay the course on wage increases and maybe even tweaking the key rate some to move it closer to where the US is so that the Japanese yen can get a little stronger but not too strong.

Have a nice day and be safe!