Abe Presses Firms to Lift Capital Spending
World Economy

Abe Presses Firms to Lift Capital Spending

Prime Minister Shinzo Abe’s government on Friday urged Japanese firms to help revive the flagging economy by using their hefty cash piles to boost capital expenditures, Reuters reported.
The request was made during the first round of talks between cabinet ministers and business leaders on expanding business investments, in a show of government pressure on companies to lift investment needed to generate a virtuous growth cycle.
The move follows Abe’s intervention in labor-management talks to press firms to raise wages, at a time his “Abenomics” recipe of aggressive monetary stimulus, spending and growth strategies is seen losing momentum.
“Corporate profits have risen to a record high but investment growth has not been enough,” Abe told the meeting.
“Now is the time for companies to aggressively invest in facilities, technology and talent. The industry circles today showed a positive stance to expand investment.”
Sadayuki Sakakibara, chairman of Japan’s biggest business lobby Keidanren, demanded the government lower the effective corporate tax rate - among the developed world’s highest - to below 30 percent as soon as possible to spark business investment.
The government cut the corporate tax rate to 32.11% in the current fiscal year from last year’s 34.62 percent, and plans to reduce it to 31.33% next fiscal year.
After the session, Economics Minister Akira Amari said it was wrong to think Japanese demand would not grow due to the country’s dwindling population.
“It’s clear that domestic capital spending is weak, while companies are hoarding cash and savings,” he told reporters. “I want to push companies’ back to fill this gap.”
The amount of cash Japanese companies have amassed has increased since Abe took office in December 2012.
Ministry of finance data showed corporate internal reserves stood at 350 trillion yen (1.9 trillion pounds) in the fiscal year ended March 2015, compared with 300 trillion yen two years earlier.
In the two years ended March 2015, capital expenditures grew just 5 trillion yen, to 40 trillion yen.
Amari also said the government had not yet started formally debating an extra budget for this fiscal year, including steps such as cash payouts to low-income groups to stimulate consumption.
The Bank of Japan’s key tankan survey showed big firms maintained their bullish capital expenditure plans for this fiscal year, although core machinery orders, a leading indicator of capital expenditure, have fallen in the past three months.

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