Japanese corporate investment in the first quarter surged 6.4% year-on-year to a record ¥18.8 trillion ($130 billion), driven by strong domestic demand. Sectors such as real estate and food services saw notable increases, up 11% and 13% respectively, supported by rising prices and inbound tourism.
However, export-oriented industries showed weakness. Auto sector investment fell 1.4%, and factory equipment spending dropped 4.1%, reflecting growing caution amid U.S. tariff threats following President Trump’s re-election.
Economist Takeshi Minami noted that trade uncertainty has dampened sentiment in key industries. While capital spending rose 1.6% on a seasonally adjusted basis, investment had dipped 0.2% in the prior quarter—its first decline in nearly four years.
Preliminary GDP data showed Japan’s economy shrank at an annualized rate of 0.7% in Q1, hurt by weak exports and sluggish consumer spending.
Despite strong corporate profits—sales up 4.3% and recurring profits up 3.8%—the threat of new U.S. tariffs looms large. If all proposed tariffs are implemented, Japan’s annual exports to the U.S. could fall by ¥6 trillion, cutting corporate profits by up to 25% and slowing wage growth, according to the Japan Research Institute.
This potential drag may challenge the Bank of Japan’s hopes that rising wages will drive domestic demand and support future rate hikes.