Japanese companies are investing, confronting the challenge of full employment and a labour shortage head on. Private non-residential investment was strong in Q3 (+3.5% q/q annualised). In fact, private non-residential investment rose to a new secular high as a share of real GDP.
Separate data from Japan’s tertiary activity index provides compelling evidence that companies are investing productively, particularly in innovation-enhancing software and data processing. For the whole of Q3, information services expanded 6.1% y/y. Custom software services rose 5.5% y/y (3-month moving average), while the more volatile package software component jumped 15.4%.
Shinzo Abe’s instruction to his Cabinet to draw up a stimulus package – the first since August 2016 – has been viewed as confirmation that the impact of ‘Abenomics’ is fading. There are worries in some quarters that the economy will slump after the Olympic games next year. Real GDP growth slowed in Q3 as well, to 0.2% q/q annualised. Real consumption of households increased 1.4% q/q annualised, but in level terms, expenditures remain well below the pre-2014 tax hike peak. A drawdown of inventories and net exports also slowed the economy in Q3.
Nevertheless, the strong trend in IT capital expenditures has the potential to underpin the economic expansion in Japan beyond the 2020 Olympic games.
