A Look at Capital Investment Plans of Japanese Companies

Domestic Business Investment

The Japanese economy remains in a stalled mode. Recent economic reports do not paint a very optimistic picture for 2003. Capital spending by Japanese businesses both domestically (in Japan) and internationally (in other countries) remains low, when compared to investment trends in the 1980s and 1990s.

The forecast for 2003 indicates a continued conservative attitude toward domestic capital investment by Japan's major industries. Domestic capital investment was down 9.6 percent in 2001 and the final figures for 2002 are expected to come in around -0.6 percent. Manufacturing investment in 2002 is expected to come in at -5.6 percent.

A recent survey by the Development Bank of Japan expects total business capital investment to decline by 5.1 percent in 2003, with manufacturing investment expected to be down by 3.9 percent and non-manufacturing investment is expected to be down by 5.3 percent.

International Business Investment

International capital investment by Japanese businesses is expected to register a favorable gain in 2002, rising by 6.1 percent. The 2003 international capital spending forecast for Japanese businesses has not been released yet. In 2002, 32 percent of Japanese international investment was headed to the Euro Zone, and another 13 percent to other Asian countries.

Japanese investment in the United States is expected to decline by 0.6 percent in 2002. About 48 percent of all Japanese international investment occurred in the U.S. in 2001 and 45 percent of the total is expected to occur in the U.S. in 2002. Over 85 percent of all Japanese business investment overseas is by manufacturing companies; most of which was investment in upgrading existing production facilities.

What are the chief motives for Japanese capital investment? Across all industries, 41 percent is motivated by the expansion of production capacity. Another 12 percent is accounted for by new product development. R&D investments account for 3-4 percent of these capital investment totals.

For more details, download the new Development Bank of Japan's report here .

The recent studies reviewed in this article suggest that Japanese businesses will invest cautiously this year given the current world uncertainties that are holding back investment by businesses in all nations.

On a closing note, you might find it interesting to read about how the Development Bank of Japan (DBJ) works to encourage foreign direct investment (FDI) in Japan. To visit the DBJ's Foreign Direct Investment Home Page, just click here.