Japanese firms put capital investment plans on hold as trade risks grow

By Tetsushi Kajimoto

Most Japanese companies have put capital investment plans on hold as a result of the U.S.-China trade war and other global risks, a Reuters survey found, in a potential blow for Prime Minister Shinzo Abe's economic agenda.

Delaying improvements in factories, equipment and technology could be a precursor to cutting investments altogether at a time when profits appear to be levelling off and the outlook for consumption - the bulk of economic activity - is dimming.

One firm in five has already cut its initial spending plans at home and overseas for the business year to March, the Reuters Corporate Survey found, while two-thirds say they're sticking to their plans.

Business investment accounts for almost one-fifth of activity in the world's third-biggest economy and has been one of its few bright spots. Driving spending are companies' moves to refurbish old equipment and pour money into automation, high-tech and labour-saving technology to cope with a shortage of workers in a fast-aging society.

The findings pose a challenge to Abe's key economic reforms, known as "Abenomics", which has sought to generate sustainable growth through private-sector demand and investment.

The monthly Reuters survey results come as the escalating U.S.-China trade war and global slowdown hurt factory output and exports. Manufacturers' confidence hit a six-and-half year low in September, the Reuters Tankan survey showed on Thursday.

"As the Sino-U.S. relationship deteriorates, we need to wait and see how production shifts away from China to Vietnam and Thailand," a manager at a metal-products and general-machinery maker that is putting some projects on hold wrote in the survey.

Some 56% of Japanese firms are shelving or postponing some investment projects slated for this business year, according to the corporate survey, which canvassed 504 big and midsize firms between Aug 29-Sept 9.

Managers from around 250 firms responded to the survey, conducted for Reuters by Nikkei Research, on condition of anonymity to voice their opinions more freely.

While a majority of Japanese firms have pushed back some of their capex projects, roughly two-thirds say they are keeping their full-year spending targets intact so far, suggesting a wait-to-see approach, rather than a complete scrapping of projects.

However, 19% said they have cut planned spending while about one in 10 companies is raising expenditures from initial plans.

In Japan, companies tend to draw up capex plans cautiously at the start of the new business year, and increase them as the year progresses.

Finance Ministry data last week showed manufacturers cut capital spending for the first time in two years in the three months to June, as the bruising Sino-U.S. trade war and slowing global growth take their toll on Japanese exports and factory activity.

This slowdown prompted the government to cut its estimate of the quarter's economic growth to an annual 1.3% from the preliminary 1.8%, reflecting a downgrade in capex growth over that period as the trade war hit corporate demand.

Japanese firms are losing confidence as they come under pressure from a double whammy of external risks and a scheduled increase next month in the national tax hike to 10% from 8%.

"We cannot forecast the future as the tax hike will cause the economy to stagnate," wrote a manager at a retail firm.

A Cabinet Office survey released on Monday signalled a bleak outlook for consumption. The survey's "economy watchers" index, which measures business confidence among workers such as taxi drivers, hotel workers and restaurant staff, remained around a three-year low in August.

A tit-for-tat tariff war between the United States and China now involves hundreds of billions of dollars of each country's goods and threatens global economic growth. Both sides imposed new tariffs Sept 1 in the latest escalation, though Washington says face-to-face trade talks will resume this month.

© (c) Copyright Thomson Reuters 2019.

©2019 GPlusMedia Inc.

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Japanese companies can easily help save the Japanese economy. All they have to do is invest in human capital. A reduction of work hours with an increase in salary as well as focus on productivity over the amount of hours put in would not only free up the Japanese people to spend but also provide them with the capital to spend.

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I thought trade wars were supposed to be easy to win? Could Putin's Puppet have been mistaken?

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Business investment accounts for almost one-fifth of activity in the world's third-biggest economy and has been one of its few bright spots.

The author obviously used a template to write the stuff he wrote.

Bright spot when it has not translated to higher wages and increased spending of the working population.

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The findings pose a challenge to Abe's key economic reforms, known as "Abenomics", which has sought to generate sustainable growth through private-sector demand and investment.

Who in his right senses is still holding hopes on Abenomics, it was nothing but a buzzword and like all buzzword it died and was buried a long time ago.

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The worst aspect of the Sino-American trade war is its frantic speed, giving neither country's manufacturing sectors time to adjust to the new situation. Other countries caught in the global interdependency are similarly in a pickle: for example, I ran across tie-shoes (made south of China) without any grommets to enable the shoe laces to slide through the holes. Someone--in this case a middle-person, it seems--failed to get across the design needed in time for production and attempted sale. Simultaneously, American firms are said to be complaining that they had no warning to prepare factories and systems to replace what has been lost through Draconian customs tax hikes. Elected to put America in "first" place through business savvy, one can perhaps excuse Mr. Trump's lack of military planning experience. Yet this business problem could have been prevented by common sense, could it not? Where is the fire? Why not plan the customs' hikes as slowly as TPP?

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This is the result of staying on america's side.

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No, its as a result of the general Global decline experienced everywhere....

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