Japan’s Corporate Capital Spending Slows but Continues to Support Domestic Demand

Japan’s corporate investment in factories and equipment grew 2.9% in the July–September quarter compared with the same period a year earlier, according to new data from the Ministry of Finance. Although this marks a slowdown from the strong 7.6% increase seen in the previous quarter, capital expenditure remains a crucial driver of domestic demand and a key indicator of Japan’s economic resilience.

Economist Kazutaka Maeda of the Meiji Yasuda Research Institute noted that the weaker pace of growth is “slightly concerning,” especially when evaluating the outlook for the coming months. However, he maintains that business investment should stay relatively firm. Companies continue to show strong interest in software, automation, and digital tools—areas critical for addressing Japan’s chronic labor shortages, particularly as its population ages.

Seasonally adjusted data shows capital spending declined 1.4% from the previous quarter, introducing potential downward pressure on Japan’s revised third-quarter GDP, scheduled for release on December 8. Preliminary figures already indicated the economy shrank at an annualized rate of 1.8% during the quarter due to weakened exports and the impact of U.S. tariffs, marking Japan’s first contraction in six quarters.

Despite broader economic headwinds, Monday’s report highlighted pockets of strength. Corporate sales edged up 0.5% year-on-year, while recurring profits surged 19.7%, suggesting many Japanese companies remain resilient even as global trade tensions linger. The electrical machinery and equipment sector posted particularly strong profit growth, while the auto industry continued to face challenges.

Capital expenditure has remained solid in recent years, supported by heavy investment in information technology and automation as businesses work to overcome persistent labor shortages. Analysts expect this trend to continue, helping stabilize the economy as high inflation squeezes household spending and exports remain under pressure from U.S. trade policies.

The government is also prioritizing investment as part of its economic strategy. It recently approved a 21.3 trillion-yen ($136 billion) stimulus package—its largest since the COVID-19 pandemic—aimed at bolstering key sectors tied to economic security and long-term growth.