The top three spots in the list of the 10 biggest spenders did not change between fiscal 2006 and 2021. While more companies in infrastructure sectors, such as telecommunications, electric power and railways, made the list last fiscal year, electronics companies saw their rankings decline.
Weak capital expenditures partly explain Japan’s stagnation as old guards continue to dominate the industry while no new rookies appear to revitalise the economy.
“Japan’s corporate sector remains cautious about capital spending,” the Cabinet Office said in its 2022 report on the domestic economy and public finance, noting that businesses have become more conservative about the use of money. The finance ministry’s statistical survey on corporate financial statements also shows that capital spending has not increased in tandem with higher pretax profits.
Over the past 30 years, corporate capital expenditures have increased by 3.7 times in the US, 1.7 times in Britain and 1.4 times in Germany, but just 1% in Japan, according to the Organization for Economic Cooperation and Development.
QUICK-FactSet data shows that Toyota Motor, Nippon Telegraph and Telephone and Nissan Motor were the largest spenders among nonfinancial companies in fiscal 2021, unchanged from fiscal 2006, when capital investment marked the most recent peak.
Toyota spent ¥3.48 trillion (US$25.29 billion) in fiscal 2021, up more than ¥600 billion from 15 years earlier. Of the total, ¥2.2 trillion was used to secure lease assets. The automaker also invested to develop new models and improve productivity.
NTT spent ¥1.75 trillion, mostly to upgrade facilities for mobile phones and data centres as it accelerated its 5G business. Among telecommunication companies, SoftBank Group and KDDI increased spending from fiscal 2006. SoftBank ranked fourth in the latest list of the biggest spenders, while KDDI came in 11th. Railway companies and power utilities also ranked high.
Electronics companies, meanwhile, dropped in the ranking. Hitachi, which slashed capital spending from ¥930 billion to ¥290 billion on restructuring, fell from fourth to 20th. The company sold off such units as Hitachi Kokusai Electric and Hitachi Chemical (now Showa Denko Materials). Canon dropped from ninth to 41st place, while Panasonic Holdings sank from 10th to 29th.
“Investment made in the 2000s often did not boost earnings as expected, making companies more cautious about new spending,” said Kenji Tanaka, a professor at Teikyo University and an expert in corporate investment.
Various data shows many companies that heavily invested before the global financial crisis of 2008 are still struggling to recover their investments.
The nature of spending has also changed. “We are increasing intangible assets while curbing investment that could lead to a buildup in fixed assets by carefully examining our spending plans,” said Hitachi Executive Vice President Yoshihiko Kawamura at a July 29 online conference to report April-June earnings results.
The Cabinet Office also focuses on the levels of business entries and exits to gauge the overall vitality of the economy. So-called metabolism rates, measuring combined annual entries and exits as a percentage of overall businesses, stood at around 20% in the US, Britain and Germany, but only 5% in Japan.
The US enjoys a dynamic circle of growing investment and economy: As startups expand with more spending, that in turn fuels the economy and spawns more businesses. According to QUICK-FactSet data, Amazon made the biggest capital investment in the US in fiscal 2021, followed by Google holding company Alphabet, General Motors, Microsoft and Intel.
GM, which ranked first in the list of biggest spenders in fiscal 2006, fell to third place 15 years later. Besides GM, all other companies in the top five spots in the latest ranking are related to information technology.
It is evident that companies cannot achieve sustained growth by stashing away cash. The Japanese economy will stagnate further unless the country finds a way to encourage businesses to take risks by venturing into new fields and making fresh investments.