Capital investment: Japan Inc. tightens purse strings at home

(From Nikkei Asian Review)

Despite stellar earnings, Japanese companies appear reluctant to spend big on equipment at home, a trend attributed to such factors as their overseas focus and the advance of cloud-computing that has reduced software expenses.

yennotesCapital spending in Japan shrank an annualized 4.8% from the previous quarter in the April-June period and fell an annualized 5% in the three months ended in September, a factor that pushed Japan’s real gross domestic product into negative territory for two consecutive quarters.

“Companies are spending the bulk of their profit overseas,” Yoshimitsu Kobayashi, chairman of the Japan Association of Corporate Executives, said at a news conference Nov. 17. “Corporate managers think by looking at 10 or 20 years down the road.”

He was apparently responding to government officials who grumble that companies are not spending enough on equipment or wage increases despite their strong earnings. Aggregate pretax profit of listed companies in Japan is seen climbing to a record for the second consecutive year in fiscal 2015.

Many corporate chiefs see spending more overseas as the obvious choice over stepping up investment in Japan, where demand growth is limited. And overseas investors, closely watching returns on equity, also demand such steps.

Japanese companies are particularly aggressive about mergers and acquisitions, a time-efficient way of broadening a business’ reach. Their M&A spending overseas topped 10 trillion yen ($80.6 billion) for the first time this year, according to M&A advisory Recof.

Benesse Holdings Chairman and CEO Eikoh Harada stressed that “overseas businesses are the growth driver,” when announcing a midterm plan at the end of October. The company has earmarked a record 200 billion yen for investment over five years, with a focus on overseas operations.

Logistics service providers and other companies that have focused on the domestic market are also speeding up expansion abroad.

Some companies are looking at new technologies rather than capacity. Toyota Motor and six other automakers are planning combined R&D spending of 2.73 trillion yen for fiscal 2015, up 7% on the year, looking to commercialize self-driving and other next-generation technologies.

R&D spending will be included in GDP data from the end of next year, but at this point, its omission makes corporate spending look even smaller than the reality. Read more



Categories: Asia Unhedged, Japan

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