In data published Tuesday, the Finance Ministry said business investment excluding software climbed 2.9% quarter-on-quarter in the three months through June. On a year-over-year basis and including software, capital spending rose 1.6%, easily topping economists' median call for a 0.3% drop. Revenue was 5.9% higher than a year ago, and current profits climbed 24.6%.
The stronger corporate outlays point to a likely upward revision to second-quarter GDP when final figures arrive on Sept. 8. The initial estimate showed a 1.2% decline in corporate investment and flat consumer spending, leaving overall growth slower than in the prior quarter.
Results broadly align with the Bank of Japan's Tankan released in early July, which indicated large companies plan to lift capital investment by 11.5% in the fiscal year ending March, up from a previous projection of 3.3%. That backdrop is seen keeping the BOJ on course for a near-term rate increase, potentially as soon as Sept. 18, as suggested by the survey and firm corporate data.
"Non-manufacturing companies continue to invest in AI to reduce labor costs, but manufacturers remain cautious about capital investment against the backdrop of the situation in Iran even though their profits are rising," according to Takeshi Minami, the Norinchukin Research Institute's chief economist. "I believe the data will have a positive effect on GDP."
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The broader picture shows companies absorbing higher operating costs tied in part to supply-chain snags from the war in Iran, with a weaker yen cushioning exporters. Manufacturing has registered expansion every month this year. "Looking ahead, although tensions over the situation in Iran are likely to persist, I believe companies will still need to make a certain level of capital investment," Minami said. "Therefore, I expect capital investment that had been postponed to gradually materialize in the July-September quarter."
