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Japan Inc to keep up investment despite trade war worries

Companies look to spend 9.9% more this year but pace is slowing, survey shows

Japanese companies look to increase investment in automation and other measures to address the country's labor shortage.   © Reuters

TOKYO -- Japanese companies across all industries plan to boost capital investment, increasing spending on automation and other labor-saving technologies, according to a survey conducted by Nikkei Inc.

The fiscal 2019 capital investment trend survey covered 1,064 companies, which include major non-listed companies capitalized at 100 million yen (about $920,000) or more as well as listed companies.

Corporate Japan has been investing heavily in ways to cope with the country's ongoing labor shortage, and the upcoming 2020 Tokyo Olympics has provided a tailwind for business spending on infrastructure. But at the same time, an increasingly fractious trade dispute between the U.S. and China, two of Japan's most important trading partners, has weighed on business sentiment.

Companies plan to spend a total of 29.7 trillion yen in fiscal 2019, which started April 1, up 9.9% from their actual capital investment in fiscal 2018.

But the pace of increase will slow sharply compared with corporate Japan's spending plans for fiscal 2018. Last year companies planned to increase their spending by 16.7%.

Retail giant Aeon plans to raise its capital spending by 0.9% to 500 billion yen in fiscal 2019. "We have not made any progress at all toward digitization," said President Motoya Okada. "Investment that leads to labor-saving and personnel-saving is crucial."

The need to cope with new technologies such as next-generation 5G mobile technology is also supporting investment.

Nippon Telegraph & Telephone is the biggest Japanese company in terms of capital investment value. The NTT group plans to increase spending by 3.1% to 1.75 trillion yen this year.

"NTT Docomo's 5G investment and (the NTT group's investment) in data centers will increase," President Jun Sawada said.

KDDI also plans to increase spending, by 1.4%, to 610 billion yen. "Investment for 5G has increased (in fiscal 2019) and will further increase in fiscal 2020 and beyond," said President Makoto Takahashi.

While investment will stay at high levels, more of that spending will be happening at home, rather than overseas.

It is possible to compare domestic and overseas investment at 644 of the 1,064 surveyed companies. In fiscal 2019, they plan to boost their total domestic investment by 6%, while they plan to increase overseas investment by only 2.4%.

Those domestic investment plans include urgent projects, like building infrastructure ahead of the 2020 Tokyo Olympics and upgrading aging facilities.

Last year those companies' domestic spending rose 9.4% from a year earlier, and their overseas investment climbed 11.2%.

East Japan Railway Company plans to raise its investment by 21.9% to 768 billion yen, partly to build platform doors, while Oji Holdings plans to boost its capital spending by 86.4% to 104 billion yen, partly to upgrade its domestic facilities.

On May 20, the Cabinet Office released preliminary figures on Japan's gross domestic product for the January-March quarter of 2019. Domestic capital investment fell for the first time in two quarters.

According to the Bank of Japan's closely watched "Tankan" quarterly survey of business sentiment for March, large companies plan 1.2% more domestic investment in fiscal 2019.

"Domestic investment by major companies will be underpinned by labor-saving and the upgrading of aging facilities," said Takuya Hoshino of the Dai-ichi Life Research Institute. But "there is also a downside risk to the manufacturing industry's overseas investment."

Nikkei Inc.'s latest capital investment trend survey was conducted between April and mid-May, covering companies' investment plans as of April 30.

The survey does not factor in the effects of the fourth round of U.S. import tariffs on Chinese goods -- details of which were announced by President Donald Trump's administration in mid-May -- and a ban on U.S. exports to Chinese telecoms equipment giant Huawei Technologies.

This is the third consecutive year that corporate Japan has planned to increase its capital spending. But if business sentiment deteriorates further, more companies are likely to delay investment.

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