Japan Capex Logs Sharp Rise But Manufacturers' Profits Tumble On US Tariffs

• Japanese corporate spending on plant and equipment climbed 7.6% y/y in Q2 (Apr-Jun), but the outlook for business investment has clouded as manufacturers' profits slide on pain caused by U.S. tariffs.
• On one hand, the healthy rise in capital expenditure supports the case for the central bank to raise interest rates again later this year. The same finance ministry data also showed, however, that while overall, recurring profits increased 0.2%, they tumbled 11.5% for manufacturers, led by a 29.7% plunge for automakers.
• Economists noted that exporters have so far absorbed higher U.S. tariffs by cutting prices, but sustained margin pressure could weigh on future investment. Preliminary GDP data showed 1.0% annualised growth in Q2, but revised figures due Sept. 8 are now expected closer to 0.8% as capex estimates are adjusted lower.
• Risks loom in Q3, with July exports logging their steepest drop in four years and industrial production dragged by a 6.7% fall in auto output.
• A Japan- U.S. trade deal in July is expected to lower auto tariffs to 15% from 27.5%, though the timing remains uncertain pending U.S. presidential approval.

(Source: Reuters)