Japanese Corporate Investment Falls

Investment in capital assets across Japan’s leading companies fell over the second quarter year on year, according to figures released today, which could be suggesting an overall downward trend in the Japanese economy.

The official figures reflected an overall decline in capital investment spending from the same period last year, prompting fears of a general slowdown in the economy.

Spending in the second quarter last year was 4.9% higher than the figures for the period this year, seeing the first decline in capital investment spending for almost four years.

Leasing companies were among some of the worst hit by interest rate rises earlier on this year, when the Bank of Japan lifted rates from 0.25% to 0.5%. Many analysts believe the rising cost of leasing assets and a tightening credit environment could be some of the factors behind the fall in business investment.

With the ongoing sub-prime lending crisis in the US, lenders and investors have shied away from risky investments for the fear of chronic liquidity shortages, which is thought to partially responsible for the contraction in capital investment.

With mortgage lenders driven to the verge of financial ruin, investment is becoming increasingly tighter, with natural market tendencies to save rather than loan.

All in all, investment was down by an estimated 22%, suggesting that the Japanese economy overall could be suffering a slowdown in growth. The Bank of Japan decided to maintain interest rates at their current level last month.

However, with interest rates likely to rise over the next few months, Japanese growth could be further hit as the price of lending grows. Yet with many suggesting low Japanese interest rates could be affecting the world economic climate, the Bank of Japan could be left with little choice when it comes to deciding rate policy.

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