MNI BRIEF: BOJ Vigilant Despite Strong Planned Capex

Bank of Japan officials are concerned slower global demand and tighter financial conditions could negatively impact large and small company capital investment, despite both sectors reporting strong plans this fiscal year.

The BOJ March Tankan showed capex plans at the beginning of the new fiscal year far above average historical levels. Companies sharply lowered capex last fiscal year due to high costs and a slower global economy. Bank officials note this year's strong capex plans are a natural consequence of last year's downward revision.

The Tankan also showed strong demand for labour saving investment, as the private sector suffered from worker shortages. Economic conditions do not typically influence labour saving investments. But high costs and uncertainty over future demand strongly influences investment to increase capabilities. With uncertainty increasing, business will cautiously implement capex despite the high level of planned investment.

BOJ officials monitor revised capex plans reported in the June Tankan, considered a more reliable gauge to measure the profit-spending cycle. Capex plans in the March Tankan historically do not show real corporate business plans, as the private sector is reluctant to this before the start of the new fiscal year in April.