Business / Economy

Japan Inc.'s investment cuts cloud 'Abenomics' as firms, sensing slump, save for rainy day


Japan Inc. is looking like it’s not holding up its end of the “Abenomics” bargain.

Since Prime Minister Shinzo Abe took office almost three years ago, he’s been championing yen-weakening policies that pushed corporate earnings to record highs in the hopes that companies will boost spending and workers’ paychecks. Yet the latest figures show falling business investments helped push Japan into its second recession under Abe and wage growth remains stagnant.

While those figures amount to a snub for Abe, they also illustrate the prime minister’s broader struggles in getting companies to buy into Abenomics. Just as before Abe, manufacturers continue to shun building factories in the world’s third-largest economy as companies hoard record levels of cash.

“The decline in corporate spending is devastating for Abe,” Takuji Okubo, Tokyo-based chief economist at Japan Macro Advisors, said in an interview. “It shows that however much encouragement and cheering is coming from the government, Japanese companies are still very reluctant to invest.”

Third-quarter corporate spending — specifically, seasonally adjusted nonresidential business investments — shrank 1 percent from the preceding quarter, their first back-to-back declines since 2011, when Japan Inc. was reeling from a devastating earthquake, tsunami and nuclear crisis.

By contrast, operating profits for long-standing members of the Nikkei 225 average that have posted results for the three months that ended in September rose to a new quarterly record of ¥7.7 trillion ($62.8 billion), according to data compiled by Bloomberg. Toyota Motor Corp. earned an unprecedented ¥827.4 billion, more than twice what General Motors Co. and Ford Motor Co. posted combined.

Toyota, Japan’s largest manufacturer, is being the good corporate citizen by boosting spending. The problem for Abe is that the company is the exception to the trend of reduced capital spending among Japanese automakers, which are increasingly relying on demand for growth.

Honda Motor Co. scaled back expenditures by 4.2 percent in the six months through September, while Mazda Motor Corp. plans to cut investment by 20 percent this fiscal year. Nissan Motor Co., which cut spending 2.5 percent in its latest half year, said this month it doesn’t plan to substantially increase capital expenditures in Japan.

“The capital expenditure just continues to miss,” George Boubouras, Melbourne-based chief investment officer at Contango Asset Management Ltd., said in an interview with Bloomberg Television. “More structural reform, if you can believe it, is required, and very quickly.”

Another source of headaches for Abenomics are wages. Monthly cash earnings, including bonuses, have risen more than 1 percent only once during Abe’s administration and even fell 2.5 percent in June — the biggest drop in more than five years.

Japanese companies are giving raises to workers, though not as much as unions have been asking for. The average increase in monthly pay was about ¥6,670 for this fiscal year, or 2.24 percent, according to an April survey from the Japanese Trade Union Confederation (Rengo). The labor group entered talks this spring asking for increase of more than 4 percent.

So why such penny-pinching? One explanation is that slowing economies in emerging markets, especially China’s, give more reason for companies to save for a rainy day.

“With the cloudy economic outlook, companies aren’t willing to increase spending even on the back of record profits,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo.

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