In the quarter ending September, Japanese companies raised their investments, indicating stronger-than-expected resilience in corporate confidence. This development strengthens the likelihood of the Bank of Japan (BOJ) considering an interest rate hike in the near future.
According to the Finance Ministry’s report on Monday, capital expenditure on goods excluding software rose by 0.8% during this period, primarily driven by manufacturers. This increase contrasts with the previously reported 0.2% drop in corporate spending in the initial GDP estimates.
Significant Year-on-Year Growth
Compared to the same period last year, investment excluding software surged by 9.5%, exceeding forecasts, while overall investment, including software, grew by 8.1%. These figures will be included in the revised GDP data set to be released on December 9.
Implications for Interest Rates
The domestic economy’s steady performance, coupled with persistent inflation, could push the BOJ to act on interest rates sooner than anticipated. Shinichiro Kobayashi, Chief Economist at Mitsubishi UFJ Research and Consulting, suggests that the BOJ may decide to raise rates at its next meeting on December 19, rather than delaying until 2025.
Sector Performance Highlights
- Investment in manufacturing (excluding software) increased by 3.7% from the previous quarter.
- Meanwhile, the service sector saw a 0.7% decline in investments.
Challenges Ahead
Despite the uptick in capital expenditure, corporate profits saw their steepest decline since Q1 2022, mainly due to intensified competition in the automotive sector and falling oil prices affecting energy companies.
Conclusion
The continued rise in capital investments, especially in manufacturing, reflects Japan’s economic resilience despite global challenges. Combined with sustained inflation, these developments pave the way for a potential rate hike by the BOJ.
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