Japan’s Economy: Q4 Capex Rise Boosts Case for Central Bank Policy Shift


  • Strong capital expenditure (capex) data may strengthen arguments for a shift in the central bank’s ultra-accommodative monetary policy.
  • Investor attention is currently on this year’s wage negotiations, potentially leading to substantial pay increments, vital for ending negative interest rates.
  • Last quarter observed a 16.4% year-on-year increase in capex, bolstered by industries like transport equipment, information, and communications.
  • Revised GDP figures, due on March 11, will consider this data. The estimates for last year’s fourth quarter signaled Japan’s economy might have avoided recession.

Stimulating Central Bank Reforms

The robust capex statistics could potentially enhance the argument for the central bank to modify its highly accommodative monetary strategy soon. The spotlight is currently on wage negotiations for this year, which may result in significant salary increments. These are a decisive requirement for the termination of negative interest rates.

Significant Rise in Capital Expenditure

As per the data from the Ministry of Finance released on Monday, capital expenditure escalated by 16.4% in the last quarter compared to the previous year, and by 10.4% on a seasonally adjusted quarterly basis. The major contributors to this growth were sectors such as transport equipment, information, and communications.

GDP Revision Affects

The data will play an essential role in calculating the revised gross domestic product statistics, which are due for release on March 11. Preliminary evaluations observed a contraction in Japan’s economy for the second consecutive quarter, from October to December. It was partially due to a drop in the GDP’s capex element, which fell 0.1% quarter-on-quarter, marking the third consecutive quarter of declines.

Economic Outlook

Norinchukin Research Institute’s chief economist, Takeshi Minami, opined that the GDP data could be revised to reflect growth in the last quarter. This potentially means that the economy successfully dodged a recession at the end of the previous year. “The Bank of Japan might find this inspiring, even though it may not have a direct impact on monetary policy,” Minami stated. “The focus is on wages, and we are still expecting the central bank to cease negative rates in April rather than March.”

Growth Expectations

Three other economists predict GDP growth ranging from an annualized 1.1% to 1.4% in the last quarter, an improvement from a preliminary estimate of a 0.4% contraction.

Corporate Performance

The capex data also revealed a 4.2% quarter-on-quarter increase in corporate sales on Monday. Furthermore, recurring profits surged by 13.0% in the October-December quarter compared to the same phase in the previous year.

Source: https://firstmetro.com.ph/japan-corporate-capex-jumps-paving-way-for-boj-exit-from-stimulus/

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