Japan's firms raised capital spending ahead of U.S. tariffs
Japanese businesses increased capital investment at a faster pace in the first quarter of this year just as U.S. President Donald Trump's administration touted the coming tariff campaign that kicked off in March.
Capital expenditure on goods excluding software gained 1.8% in the three months through March from the previous quarter, when such outlays rose by 1.3%, the Finance Ministry reported Monday. The reading compares with a 1.4% gain in corporate investment reported in the preliminary reading of Japan's gross domestic product. The latest data will be factored into a revised GDP report due for release on June 9.
Compared with a year ago, investment including software increased 6.4%, beating the median estimate of a 3.8% gain. Profits rose 3.8% from a year earlier and sales advanced 4.3%.
Business spending holds the key to the country's economic growth as inflation keeps a lid on household spending and Trump's tariff campaign clouds the trade outlook. The data will be used to revise the first quarter GDP report after the preliminary reading showed a contraction driven by weak trade figures and stalling consumption.
"There will be little impact on the revised GDP figures,' said Takeshi Minami, chief economist at Norinchukin Research Institute. "I think the GDP results will remain negative, as consumption continues to struggle and the tariffs hit exports. I expect negative growth to continue in the April-June period.'
The value of sales and capital investment both reached record levels, with food and steel companies increasing outlays to boost production capacity, a ministry official said.
The tariffs are expected to dent exporters' competitiveness and may reduce their willingness to invest in facilities and raise wages. A 25% tariff on steel and aluminum took effect in March, followed by the assessment of a levy at the same rate on autos and a 10% across-the-board tax starting in April. The across-the-board duty will rise to 24% in early July, barring a trade deal.
"I think capital investment in machinery is slowing down,' Minami said. "The impact of tariffs will become clearer in the April-June period, so I don't think we will see an improvement in capital investment figures.'
Japan's biggest carmakers are likely to take a hit of more than $19 billion from the tariffs as they are heavily reliant on the U.S. market. Toyota, the world's biggest carmaker, will probably sustain the worst hit.
Monday's data come as the government steps up a campaign to encourage corporate investment. An expert panel of the Ministry of Economy, Trade and Industry recommended that when companies have excess funds on hand, they channel the money into capital investment rather than share buybacks, according to an interim report.
The Bank of Japan on May 1 said the slowdown in overseas economies is likely to weigh on exports and production, causing business investment to decelerate. It said that companies are expected to maintain investment to cope with labor shortages and to enhance digitalization and decarbonization.
Japan continues to seek reprieves from the U.S. tariffs while the United Kingdom reached a deal and China agreed upon a tariff truce with Trump. Japan's top trade negotiator Ryosei Akazawa said over the weekend that the latest round of discussions with the Trump administration has put the two nations on track for a deal as early as this month. Akazawa may return to the United States this week, according to NHK.
At home, Prime Minister Shigeru Ishiba's government approved an emergency measure last week to help businesses and households deal with the impact of the tariffs.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Kyodo News
16 minutes ago
- Kyodo News
2 SDF planes leave Japan for Djibouti for possible Mideast evacuation
KYODO NEWS - 4 minutes ago - 17:46 | All, Japan Two Self-Defense Forces planes departed Japan on Saturday for eastern Africa to stand by for a possible evacuation of Japanese nationals from the Middle East amid mounting safety concerns over the escalating conflict between Israel and Iran. The C-2 transport planes left Miho Air Base in Tottori Prefecture, western Japan, carrying about 120 personnel, according to the Defense Ministry. They will stand by at a Self-Defense Forces base in Djibouti, with no specific airlift plans at present as major airports in Israel and Iran remain closed. Since Israeli strikes on Iran on June 13, the two countries have exchanged attacks, with tensions further escalating after U.S. President Donald Trump suggested using military options to pressure Tehran to abandon its nuclear program. On Friday, a total of 87 Japanese nationals and their family members were evacuated, with 66 traveling from Iran to Azerbaijan and 21 from Israel to Jordan on government-arranged buses, according to the Foreign Ministry. Before the bus evacuation began, about 280 Japanese citizens were in Iran, and around 1,000 were in Israel, the ministry said. On Tuesday, Japan raised the travel alert for all of Iran to its highest, Level 4, advising nationals to "evacuate and avoid all travel." Most of Israel has remained subject to the second-highest Level 3 advisory, which urges people to "avoid all travel." Related coverage: 87 Japanese nationals, family members evacuated from Iran, Israel
The Mainichi
33 minutes ago
- The Mainichi
2 SDF planes leave Japan for Djibouti for possible Mideast evacuation
TOTTORI (Kyodo) -- Two Self-Defense Forces planes departed Japan on Saturday for eastern Africa to stand by for a possible evacuation of Japanese nationals from the Middle East amid mounting safety concerns over the escalating conflict between Israel and Iran. The C-2 transport planes left Miho Air Base in Tottori Prefecture, western Japan, carrying about 120 personnel, according to the Defense Ministry. They will stand by at a Self-Defense Forces base in Djibouti, with no specific airlift plans at present as major airports in Israel and Iran remain closed. Since Israeli strikes on Iran on June 13, the two countries have exchanged attacks, with tensions further escalating after U.S. President Donald Trump suggested using military options to pressure Tehran to abandon its nuclear program. On Friday, a total of 87 Japanese nationals and their family members were evacuated, with 66 traveling from Iran to Azerbaijan and 21 from Israel to Jordan on government-arranged buses, according to the Foreign Ministry. Before the bus evacuation began, about 280 Japanese citizens were in Iran, and around 1,000 were in Israel, the ministry said. On Tuesday, Japan raised the travel alert for all of Iran to its highest, Level 4, advising nationals to "evacuate and avoid all travel." Most of Israel has remained subject to the second-highest Level 3 advisory, which urges people to "avoid all travel."
Japan Today
2 hours ago
- Japan Today
Japan scraps U.S. meeting after Washington demands more defense spending: report
FILE PHOTO: Japanese Prime Minister Shigeru Ishiba gives his opening speech at the beginning of the meeting with US Secretary of Defense Pete Hegseth at his office in Tokyo. March 30, 2025. Stanislav Kogiku/Pool via REUTERS/File Photo Japan has canceled a regular high-level meeting with its key ally the United States after the Trump administration demanded it spend more on defense, the Financial Times reported on Friday. U.S. Secretary of State Marco Rubio and Defense Secretary Pete Hegseth had been expected to meet Foreign Minister Takeshi Iwaya and Defense Minister Gen Nakatani in Washington on July 1 for the annual 2+2 security talks. But Tokyo scrapped the meeting after the U.S. asked Japan to boost defense spending to 3.5% of gross domestic product, higher than an earlier request of 3%, the newspaper said, citing unnamed sources familiar with the matter. Japan's Nikkei newspaper reported on Saturday that President Donald Trump's government was demanding that its Asian allies, including Japan, spend 5% of GDP on defense. A U.S. official who asked not to be identified told Reuters that Japan had "postponed" the talks in a decision made several weeks ago. The official did not cite a reason. A non-government source familiar with the issue said he had also heard Japan had pulled out of the meeting but not the reason for it doing so. State Department spokesperson Tammy Bruce said she had no comment on the FT report when asked about it at regular briefing. The Pentagon also had no immediate comment. Japan's embassy in Washington did not respond to a request for comment. The nation's foreign and defense ministries and the Prime Minister's Office did not answer phone calls seeking comment outside business hours on Saturday. The FT said the higher spending demand was made in recent weeks by Elbridge Colby, the third-most senior Pentagon official, who has also recently upset another key U.S. ally in the Indo-Pacific by launching a review of a project to provide Australia with nuclear-powered submarines. In March, Prime Minister Shigeru Ishiba said that other nations do not decide Japan's defense budget after Colby, in his nomination hearing to be under secretary of defense for policy, called for Tokyo to spend more to counter China. Japan and other U.S. allies have been engaged in difficult trade talks with the United States over President Donald Trump's worldwide tariff offensive. The FT said the decision to cancel the July 1 meeting was also related to Japan's July 20 upper house elections, expected to be a major test for Ishiba's minority coalition government. Japan's move on the 2+2 comes ahead of a meeting of the U.S.-led NATO alliance in Europe next week, at which Trump is expected to press his demand that European allies boost their defense spending to 5% of GDP. © Thomson Reuters 2025.
