Japan firms wary of boosting investment amid intensifying trade war: Reuters poll

FILE PHOTO: A worker walks between shipping containers at a port in Tokyo, Japan - Reuters

TOKYO (Reuters): Over a third of Japanese firms aim to raise capital expenditure in the fiscal year starting April, with many others worried about the impact on spending plans of a trade war between major markets China and the United States, a Reuters survey showed.

Tit-for-tat import tariffs and ensuing uncertainty have started to drag on global growth and hurt Japanese firms, particularly those with business in China. This has made many nervous about corporate investment, which before the trade war began last year had been a bright spot in Japan’s economy.

“We are being affected by US-China trade friction, so we are curbing capital investment until the outlook becomes clear,” a manager of a machinery maker wrote in the 7-16 January survey.

Since the start of 2019, precision motor maker Nidec Corp and automation equipment manufacturer Yaskawa Electric Corp both cut their annual operating profit forecasts due to weakening demand from China.

“Uncertainty about the global economy as a whole is causing some Japanese firms to hesitate to make active investments,” wrote a manager at another machinery firm.

Some 52% of respondents said they would not change their capital spending amounts next fiscal year versus this year, whereas 12% said they would cut. Meanwhile, 22% planned to increase investment, and 14% said they would do likewise but only moderately.

The Reuters Corporate Survey, conducted monthly for Reuters by Nikkei Research, polled 480 large and mid-sized firms with managers responding on condition of anonymity. Around 250 answered the questions on capex and trade issues.

 

Capex reversal

Major corporations said they planned to raise investment by an average 14.3% for the fiscal year that ends in March – the highest since 1990, at the end of Japan’s Bubble Era – according to the Bank of Japan’s December tankan survey.

But trade friction has since disrupted global supply chains, fuelling concern of a significant impact this year on world trade, investment and financial markets.

The Corporate Survey showed about 40% of Japanese firms saw the possibility of trade friction and protectionism denting sales and profit plans in the next fiscal year. The proportion hit around 50% among manufacturers alone.

As the trade war intensifies, global companies are shifting production and supply chains out of China, scrambling to secure new facilities in neighbouring Asian countries and rebuild supply chains outside of China.

A quarter of all firms surveyed – and one-third of manufacturers – said they intended to review their supply chain in the coming fiscal year.