Japanese companies from NTT Docomo Inc. to Honda Motor Co. are putting the brakes on spending as they pile up cash, showing the challenge Prime Minister Shinzo Abe’s new Cabinet faces in reviving the economy.
Capital expenditure growth by nonfinancial companies will slow on aggregate to 1.3 percent next fiscal year from an estimate of 7.9 percent this year, according to a Moody’s Investors Service study of rated companies. Firms on the Topix share index boosted cash by 10 percent to ¥68.5 trillion ($650 billion) in the past year, Bloomberg-compiled data show.
“Companies are piling up cash because they remain cautious,” Peggy Furusaka, a Tokyo-based credit analyst at Moody’s, said in a telephone interview Friday. “The biggest spenders, the automakers and telecommunications companies, had already started spending from three years ago and they are leveling off as they move through their investment cycle.”
Honda, Japan’s No. 3 automaker, plans to cut capital outlays 10 percent this fiscal year, while NTT Docomo, the nation’s largest mobile-phone carrier by subscribers, forecasts spending will drop about 2 percent. Even as companies take advantage of decade-low bond yields to sell longer-term debt and refinance at lower costs, total issuance of corporate notes has decreased 16 percent so far this year.
Average yields on company debt due in seven to 10 years fell to 0.55 percent last month, the least since June 2003, and was one basis point higher Thursday, according to Bank of America Merrill Lynch data. That compared with 3.6 percent on U.S corporates and 3.15 percent on global bonds of similar maturity, according to the data.
“The economy will remain the top priority,” Abe said at a news conference Wednesday following a reshuffle of his Cabinet 20 months after taking office. His stimulus plan, dubbed “Abenomics,” seeks to overcome 15 years of deflation that has encouraged companies to hoard cash rather than invest.
The benchmark 10-year bond yield has dropped 19½ basis points this year to 0.54 percent, as the Bank of Japan buys about ¥7 trillion of sovereign notes a month. The yen was at 105.35 per dollar as of 10:53 a.m. in Tokyo, after touching ¥105.71, the weakest since Oct. 3, 2008. A basis point is 0.01 percentage point.
Japan’s economic growth will probably slow in coming years even as Abe proceeds with stimulus, according to surveys of analysts by Bloomberg. Gross domestic product is forecast to expand 1.4 percent this year and 1.2 percent in 2015, according to the surveys. Economic output plunged an annualized 6.8 percent in the April-June period after the consumption tax was raised from 5 percent to 8 percent on April 1.
Even with a new Cabinet, “there are still no signs that the trajectory of economic policy is set for any major transformation,” said Daiju Aoki, an economist at UBS AG in Tokyo, in a report Thursday. “Abenomics is still deficient in that it remains unclear how companies are to generate profits from here on.”
Japanese company profits increased 4.5 percent in the second quarter from a year earlier, slowing from the 20.2 percent boost in the first three months, according to a Finance Ministry survey released this month. Capital spending rose 3 percent, after climbing 7.4 percent in the first quarter, the data showed.
“Companies are continuing to invest on a low level but there is no new driver,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “There will be basically no optimism in terms of additional demand in 2015 on the domestic private side.”
Honda plans to cut capital spending to ¥650 billion this year from 726.1 billion last year, after completing a new high-tech production plant near Tokyo. NTT Docomo forecasts that such outlays will drop about ¥13 billion to ¥690 billion in the year ending March.
Nissan Motor Co., Japan’s second-largest carmaker, expects capital expenditure to decrease 2.1 percent to ¥525 billion.
Companies will likely keep most of the cash on their balance sheet and only pay down debt modestly, so that they have sufficient funds if credit markets tighten again or a financial crisis erupts, according to Moody’s Furukawa.
Japanese corporations issued 41 percent more bonds with tenors longer than five years from April through July than in the same period a year earlier, according to Moody’s. Total debt sales so far this year have decreased to ¥5.5 trillion compared with ¥6.5 trillion in the same period a year earlier, according to data compiled by Bloomberg.
“The problem we have is the unbalanced nature of growth,” according to Fujitsu’s Schulz. “What Japan needs to do is rebalance that growth and achieve it by less government and more private spending.”
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