Japan's firms raised capital spending ahead of US tariffs
[TOKYO] Japanese businesses increased capital investment at a faster pace in the first quarter of this year just as the Trump administration touted the coming tariff campaign that kicked off in March.
Capital expenditure on goods excluding software gained 1.8 per cent in the three months to March from the previous quarter, when such outlays rose by 1.3 per cent, the Finance Ministry reported on Monday (Jun 2). The reading compares with a 1.4 per cent 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 Jun 9.
Compared with a year ago, investment including software increased 6.4 per cent, beating the median estimate of a 3.8 per cent gain. Profits rose 3.8 per cent from a year earlier and sales advanced 4.3 per cent.
Business spending holds the key to the country's economic growth as inflation keeps a lid on household spending and US President Donald 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 to 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.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
The tariffs are expected to dent exporters' competitiveness and may reduce their willingness to invest in facilities and raise wages. A 25 per cent tariff on steel and aluminium took effect in March, followed by the assessment of a levy at the same rate on autos and a 10 per cent across-the-board tax starting in April. The across-the-board duty will rise to 24 per cent 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 to 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 US$19 billion from the tariffs as they are heavily reliant on the US market. Toyota Motor, 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 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 labour shortages and to enhance digitalisation and decarbonisation.
Japan continues to seek reprieves from the US tariffs while the UK 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 US 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. BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
36 minutes ago
- CNA
Wall Street advances, dollar bounces back amid tariff talks, economic data
NEW YORK :Wall Street stocks rose and the dollar rebounded on Tuesday as investors weighed progress in ongoing U.S. tariff talks and lowered economic expectations ahead of Friday's crucial U.S. employment report. All three major U.S. stock indexes advanced, with chips putting the tech-heavy Nasdaq out front following White House assurances that U.S. President Donald Trump will likely meet Chinese President Xi Jinping this week to address trade disputes between the world's two largest economies. Gold backed down from a nearly four-week high as the greenback strengthened. "It's hard to know what's really driving things today," said Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana. "There seems to be a little bit more comfort that the economy is not going into recession, and there might be a bit of front-running here in the sense we have a jobs report that's going to be coming out and investors want to get on the right side of that before it's released." While the Trump administration pressed U.S. trading partners to provide their best offers by Wednesday, the protracted negotiations and moving deadlines have prompted economists to dial back economic expectations due to fallout from Trump's trade war. The Organization for Economic Cooperation and Development (OECD) said the global economy is on course for a more drastic slowdown than it expected only a few months ago. It cited Trump's trade war, and warned of even weaker growth as protectionism increases, fueling inflation and disrupting supply chains. The United Nations' International Labor Organization (ILO) downgraded its global employment forecast, citing worsened economic conditions from trade tensions. "Maybe that's helping U.S. markets," Carlson added, noting that the weaker global economic growth projections could be encouraging investors to move money back into U.S. The U.S. Labor Department reported that the number of unfilled U.S. jobs unexpectedly rose in April, while new orders for factory-made goods posted a steeper drop than analysts had anticipated. Investors are now focused on the May employment report due on Friday. Economists polled by Reuters expect the U.S. economy added 130,000 jobs last month, with the unemployment rate standing pat at 4.2 per cent. The Dow Jones Industrial Average rose 254.52 points, or 0.59 per cent, to 42,555.10. The S&P 500 climbed 37.77 points, or 0.63 per cent, to 5,973.53 and the Nasdaq Composite rose 169.68 points, or 0.88 per cent, to 19,412.29. European stocks ended nominally higher as investors weighed trade anxieties against a report that euro zone inflation has eased below the European Central Bank's target, paving the way for further policy easing. MSCI's gauge of stocks across the globe rose 3.00 points, or 0.34 per cent, to 885.88. The pan-European STOXX 600 index rose 0.09 per cent, while Europe's broad FTSEurofirst 300 index rose 3.80 points, or 0.17 per cent. Emerging market stocks rose 3.75 points, or 0.33 per cent, to 1,157.52. MSCI's broadest index of Asia-Pacific shares outside Japan closed higher by 0.39 per cent, to 609.86, while Japan's Nikkei fell 23.86 points, or 0.06 per cent, to 37,446.81. The dollar bounced back from a six-week low, even as concerns persisted over potential economic damage in the wake of Trump's trade war. The dollar index, which measures the greenback against a basket of currencies including the yen and euro, rose 0.69 per cent to 99.26, with the euro down 0.62 per cent at $1.137. Against the Japanese yen, the dollar strengthened 0.86 per cent to 143.91. The yield on benchmark U.S. 10-year notes was flat at 4.462 per cent, versus 4.462 per cent late on Monday. The 30-year bond yield fell 1.1 basis points to 4.9841 per cent from 4.995 per cent late on Monday. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 1.4 basis points to 3.959 per cent, from 3.945 per cent late on Monday. Crude prices extended gains, supported by geopolitical concerns as the war in Ukraine intensified and Iran appeared poised to reject a U.S. nuclear deal proposal. U.S. crude rose 1.42 per cent to settle at $63.41 per barrel, while Brent settled at $65.63 per barrel, up 1.55 per cent on the day. Gold prices retreated from a nearly four-week high amid profit-taking and in opposition to the strengthening dollar. Spot gold fell 0.82 per cent to $3,351.36 an ounce. U.S. gold futures fell 0.59 per cent to $3,350.60 an ounce.
Straits Times
43 minutes ago
- Straits Times
South Korea's new leader to seek more time for US trade talks
FILE PHOTO: Lee Jae-myung delivers his speech during a national convention of South Korea's Democratic Party to choose their candidate for upcoming presidential election, in Goyang, South Korea, April 27, 2025. REUTERS/Kim Hong-Ji/File Photo South Korea's new leader to seek more time for US trade talks SEOUL - The new South Korean administration will likely make efforts to buy time for U.S. trade talks, as it studies the negotiations of bigger neighbours Japan and China for leverage, according to sources familiar with the ruling party's thinking. President Lee Jae-myung, who is due to take office hours after winning the June 3 snap presidential election without a usual two-month transition period, said on the eve of the elections that "the most pressing matter is trade negotiations with the United States." The future of South Korea's export-oriented economy will hinge on what kind of deal Lee can strike, with all of his country's key sectors from chips to autos and shipbuilding heavily exposed to global trade. The new president and his liberal Democratic Party government inherit an economy that is expected to grow this year by a grim 0.8%, the weakest since 2020, and will need to unify a country deeply polarised by ousted President Yoon Suk Yeol's botched martial law attempt. South Korea and other countries may face further pressure, as a draft letter seen by Reuters showed the Trump administration wanted countries to provide their best offer on trade negotiations by Wednesday. A trade ministry official declined to confirm if Seoul had received the letter. But the transition of power after a six-month leadership vacuum provides Seoul with an excuse to slow down its negotiations and observe Washington's tariff talks with other countries, lawmakers, officials and trade experts from the Democratic Party said. "The new administration will need to take a fresh look at the overall framework of the negotiations and that will be a buffer to buy time, which the U.S. cannot reject," said a trade expert who took part in brainstorming for Lee's trade strategies. The sources added the administration may not be able to immediately ask Trump for an extension, and Lee's top diplomacy adviser has said he sees such a request being considered only after reviewing the progress. Still, prolonged negotiations by other countries may help to buy Seoul time. "It will be strategically right to take a wait-and-see stance because the situation is changing within the United States and around negotiations of other countries," one lawmaker said. STRATEGIC SILENCE South Korea, a major U.S. ally and one of the first countries to engage with Washington after Japan, agreed in late April to craft a "July package" scrapping levies before the 90-day pause on Trump's reciprocal tariffs is lifted, but progress was disrupted by continued upheavals in South Korea's leadership. Lee has since stressed there is no need to rush into clinching a deal and the deadline of July 8 set between Seoul and Washington should be reconsidered. During his election campaign, Lee did not make specific comments about contentious issues around the trade talks. That "silence" was a strategic move, a party official said. In a statement after his victory, the Korea International Trade Association called for Lee to "respond quickly to the rapidly changing foreign trade order" and use all of the government's diplomatic and trade resources to pursue a practical negotiation strategy. Trump's across-the-board tariffs on trading partners, including 25% duties on South Korea, have been the subject of ongoing litigation, but remain in place. "For different reasons, China and Japan will be references for us, with the former on the possibility of U.S. policy changes and the latter on how to make moves under a similar circumstance," another trade expert said. Japan, another U.S. ally slapped with 24% tariffs, no longer sees merit in striking a quick deal, unless it is granted an exemption from 25% product-specific duties on its key industry of automobiles, also a major sector for South Korea. China agreed with the U.S. to significantly unwind their tariffs on each other in a 90-day truce signed in mid-May, but Trump last week accused Beijing of violating the agreement and threatened to take tougher actions. When it comes to joint responses to U.S. tariffs, there is a higher possibility with Japan than China, two sources said, citing shared interest in energy purchases and auto tariffs. Lee's party expects there to be some "two-track" transitional period, with current officials continuing negotiations as the new administration formulates its strategies, according to the official. BETTER POSITIONED Given its strength in key sectors of U.S. interest, such as shipbuilding and technology, some analysts see South Korea as better positioned than others in the region, as Seoul prepares a separate package of industrial cooperation for bargaining power. "Successful outcomes require offers that support the president's domestic agenda, and this will be comparatively easy for Korea given its importance in politically sensitive industries," said Jay Truesdale, a former U.S. diplomat and CEO of TD International, an advisory firm in Washington, D.C. Kathleen Oh, Morgan Stanley's chief Korea and Taiwan economist, said: "We believe there may be more channels and enough scope for Korea to work out a deal compared to, let's say, its exporting peer Taiwan." South Korea has the scope to decrease its trade surplus with the U.S. via more import purchases, while it can also offer to lower tariffs on agricultural products, particularly rice, quoted by Trump as a high tariff example, Oh said. But, for the Lee administration, that is more the reason it does not have to rush, the second trade expert said. "In the worst-case scenario, if tariffs are adjusted after we sign an agreement, that might mean we made unnecessary concessions," the source said, adding "it's not like we don't have any leverage". REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
CNA
2 hours ago
- CNA
Global alarms rise as China's critical mineral export ban takes hold
Alarm over China's stranglehold on critical minerals grew on Tuesday (Jun 3) as global automakers joined their US counterparts to complain that restrictions by China on exports of rare earth alloys, mixtures and magnets could cause production delays and outages without a quick solution. German automakers became the latest to warn that China's export restrictions threaten to shut down production and rattle their local economies, following a similar complaint from an Indian EV maker last week. China's decision in April to suspend exports of a wide range of critical minerals and magnets has upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world. The move underscores China's dominance of the critical mineral industry and is seen as leverage by China in its ongoing trade war with US President Donald Trump. Trump has sought to redefine the trading relationship with the US's top economic rival China by imposing steep tariffs on billions of dollars of imported goods in hopes of narrowing a wide trade deficit and bringing back lost manufacturing. Trump imposed tariffs as high as 145 percent against China only to scale them back after stock, bond and currency markets revolted over the sweeping nature of the levies. China has responded with its own tariffs and is leveraging its dominance in key supply chains to persuade Trump to back down. Trump and Chinese President Xi Jinping are expected to talk this week, White House spokeswoman Karoline Leavitt told reporters on Tuesday, and the export ban is expected to be high on the agenda. "I can assure you that the administration is actively monitoring China's compliance with the Geneva trade agreement," she said. "Our administration officials continue to be engaged in correspondence with their Chinese counterparts." Trump has previously signaled that China's slow pace of easing the critical mineral export ban represents a violation of the Geneva agreement. Shipments of the magnets, essential for assembling everything from cars and drones to robots and missiles, have been halted at many Chinese ports while the Chinese government drafts a new regulatory system. Once in place, the new system could permanently prevent supplies from reaching certain companies, including American military contractors. The suspension has triggered anxiety in corporate boardrooms and nations' capitals - from Tokyo to Washington - as officials scrambled to identify limited alternative options amid fears that production of new automobiles and other items could grind to a halt by summer's end. "If the situation is not changed quickly, production delays and even production outages can no longer be ruled out," Hildegard Mueller, head of Germany's auto lobby, told Reuters on Tuesday. Frank Fannon, a minerals industry consultant and former US assistant secretary of state for energy resources during Trump's first term, said the global disruptions are not shocking to those paying attention. 'I don't think anyone should be surprised how this is playing out. We have a production challenge (in the US) and we need to leverage our whole of government approach to secure resources and ramp up domestic capability as soon as possible. The time horizon to do this was yesterday,' Fannon. Diplomats, automakers and other executives from India, Japan and Europe were urgently seeking meetings with Beijing officials to push for faster approval of rare earth magnet exports, sources told Reuters, as shortages threatened to halt global supply chains. A business delegation from Japan will visit Beijing in early June to meet the Ministry of Commerce over the curbs and European diplomats from countries with big auto industries have also sought "emergency" meetings with Chinese officials in recent weeks, Reuters reported. India, where Bajaj Auto warned that any further delays in securing the supply of rare earth magnets from China could "seriously impact" electric vehicle production, is organizing a trip for auto executives in the next two to three weeks. In May, the head of the trade group representing General Motors, Toyota, Volkswagen, Hyundai and other major automakers raised similar concerns in a letter to the Trump administration. "Without reliable access to these elements and magnets, automotive suppliers will be unable to produce critical automotive components, including automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lights, motors, power steering, and cameras," the Alliance for Automotive Innovation wrote in the letter.
