Reuters/Tokyo


Two in five Japanese firms plan to boost capital spending this business year, and more than a third of those say it is because of rising demand, a Reuters poll showed, pointing to a pickup in confidence about the economy.
But tempering that upbeat view was a warning from about one-quarter of respondents that their sales are so far undershooting their business plans for the year that started in April. In contrast, just one-eighth of respondents said they were ahead of plan.
The latest Reuters Corporate Survey could offer some relief to Japanese policymakers who are anxious for companies to spend their cash hoards on plant and equipment, rather than hold them in reserve as they fret over Greek debt and swingy Chinese stock markets.
Capital spending has long been the missing link in Japan’s drive for a virtuous cycle of business investment, household income growth and consumer spending to pull the world’s third-largest economy out of nearly two decades of deflation.
“This is a positive surprise. Companies are aiming to boost investment at home in anticipation of higher demand,” said Taro Saito, director of economic research at NLI Research Institute, who reviewed the results.
“Capex plans look really strong but the question is whether they are going to be implemented. I have doubts when seeing that sales are already undershooting plans.”
Japanese companies draft capital spending plans at the start of the April-March business year, which are typically cautious, and revise them if revenue and profits diverge from initial expectations.
For now, the survey of 516 big and medium-sized firms, conducted on July 1-15 for Reuters by Nikkei Research, reinforces recent signals that companies may finally be shaking off their deflationary mindset.
The BoJ’s latest quarterly tankan sentiment survey on July 1 showed that big Japanese firms plan to boost capital spending in the fiscal year to next March at the fastest pace in a decade, while this month’s closely watched machinery orders data showed a third consecutive month-on-month rise.
Managers responded anonymously to the Reuters survey and about 280 companies answered questions on capital spending and sales plans.
The survey found that about 40% of respondents plan to raise both overall and domestic capital spending, while about 50% plan to hold spending unchanged from last year.
Automobile and transport equipment makers, along with property and construction companies, were among the more bullish sectors, where those planning to boost spending were more likely to say they would boost production capacity than simply refurbish existing plant and equipment.
“We plan to raise investment at home because we anticipate demand related to disaster prevention and construction works for the Olympic Games,” said one machinery firm in the Reuters survey. Tokyo will host the Summer Games in 2020.
Rising demand and the need to replace ageing equipment were the two main reasons cited for boosting investment, each cited by more than one-third of respondents.
Only 3% cited the weak yen, which over the past two years has made Japan’s exports potentially more competitive and provided an incentive to boost domestic production.
Japanese firms have forecast on average a 0.4% rise in sales for the year to next March, according to the BoJ tankan survey.
But 27% of respondents to the Reuters survey said domestic sales have fallen short of plan since the financial year started in April, while only 13% said sales have exceeded. The majority, 59%, said sales were on track.
“Underlying sales are firm but the outlook is extremely unclear as Greece’s problems and China’s stock market volatility have shown,” wrote an executive at a chemicals firm.