Japan corporate capex rises 1.6% on year in April-June

Japanese corporate spending on plant and equipment increased by 1.6% year-on-year in the April-June quarter, signaling growing business confidence. This rise, up from just 0.05% in the previous quarter, could lead the Bank of Japan to consider an interest rate hike sooner rather than later. The Ministry of Finance data revealed the acceleration, with spending growing 1.5% on a seasonally adjusted basis.

Takeshi Minami, chief economist at Norinchukin Research Institute, attributes this to the surge in global AI growth, pushing Japanese firms to invest to stay competitive. Coupled with Prime Minister Sanae Takaichi's planned investment incentives, this may prompt firms to accelerate capital spending, bolstering business investment prospects.

The data will factor into revised GDP figures due on September 8. Preliminary figures showed the economy grew by 1.1% annually in the three months, down from 1.9% in the prior quarter, as household and business spending cooled. However, corporate sales surged 5.9% year-on-year, and recurring profits rose 24.6% to a record 44.7 trillion yen.

Factors like a weaker yen and lower U.S. tariffs aided export-oriented manufacturers. Despite some negative impacts from recent rate hikes, corporate earnings remain robust, reinforcing the view that further rate increases would not be an issue.