TOKYO -- Shares of machinery builders and others that benefit from corporate capital spending are weak these days despite the introduction of subzero interest rates, suggesting that Japan needs economic stimulus that is separate from monetary policy.
The Tokyo Stock Exchange's Topix index for the machinery industry was the biggest decliner among the 33 subindexes Wednesday, sagging over 1%. Air cylinder manufacturer SMC slipped 3%, while the two machine tool giants -- Makino Milling Machine and Fanuc -- also lost ground. The machinery index is down 12% this year.
"We just don't see anyone making capital investments," a Bank of Japan official told Yoshimitsu Goto, executive corporate officer for finance at SoftBank Group, during a routine hearing in December. The official seemed frustrated that businesses showed little interest in capital expenditures despite historically low rates, according to Goto.
The Bank of Japan pushed interest rates into negative territory in February in hopes of encouraging businesses to invest. But the scheme is barely working.
Machine tool orders logged year-on-year declines in each of the seven months through February, according to a trade group. Concerns that orders will continue decreasing amid slowdowns in emerging economies are keeping machine tool builders' stocks soft.
"The potential growth rate has fallen globally, and the manufacturing industries in the U.S. and China are hurting," said Nobuyasu Atago, chief economist at Okasan Securities. "Lowering rates is not enough to paint a rosy picture."
Business leaders agree on the limits of monetary policy. "Rates are already low, and companies that need to make investments have been doing so already," Tetsuya Fukunaga, director at information technology company SCSK, pointed out. The subzero rate policy has actually hurt business sentiment, he said, by strengthening the view that deflation is tough to shake.
To stimulate domestic demand and capital spending, some investors call for economy-boosting measures under a supplementary budget and postponement of the additional consumption tax hike.
Others have a different view. "Rather than short-term economic stimulus steps, we want measures to address the declining birthrate and other structural issues," said Yasunori Ueno, chief market economist at Mizuho Securities.
In the initial stage of the Abenomics-fueled market rally that began in the fall of 2012, overseas investors jumped on Japanese stocks on hopes for the so-called "third arrow" of the government's growth strategy -- structural reform. In any case, monetary policy on its own is insufficient.
The market is creating incentives for investors to pour money into companies with spending plans. A new stock index tracking businesses eager to make capital investments and nurture personnel is slated to debut soon, and an exchange-traded fund linked to this index will likely be developed as well.