Japan firms boost investments, signaling modest domestic demand growth.

04 Sep, 2024

Japan firms boost investments, signaling modest domestic demand growth

Japanese businesses increased their investments in the second quarter, signaling growing confidence in the economy's gradual recovery. Capital expenditure on goods excluding software rose 1.9% from the previous quarter, reflecting a stronger-than-expected boost in business investment. This growth was driven by domestic demand, particularly in private consumption, which contributed to the economy's rebound during the April-June period.

While spending on equipment, including software, rose for the 13th consecutive quarter, it missed economists' expectations. The data suggest a mild economic recovery, with stronger investment in the service sector, particularly in lodging and food and beverage, as demand remains robust. These developments support the Bank of Japan’s decision to raise interest rates in July, with business investment showing signs of a moderate upward trend.

Despite the mixed data, the government remains optimistic, with businesses expected to continue investing to address labor shortages. The economy ministry has requested increased funding for decarbonization efforts, highlighting the government's focus on long-term sustainable growth. As Japan's economy heads for a potential third-quarter recovery, the outlook remains cautiously positive, with potential implications for future economic policies and leadership decisions.