(Corrects to restore dropped word ‘flat’ in lead paragraph)
By Makiko Yamazaki
TOKYO, June 1 (Reuters) – Japanese companies’ annual spending on plant and equipment remained almost flat in the first quarter, data showed on Monday, pausing after a year of strong growth as concerns mount over the impact of the Middle East conflict.
The tepid expenditure data, which will be used to calculate revised gross domestic product figures due on June 8, come as analysts say that surging energy costs and supply chain disruptions driven by the Iran war could further undermine investment demand.
Preliminary data last month showed Japan’s economy grew at a faster-than-expected annualised pace of 2.1% in the first quarter of 2026, driven by solid exports and consumption, though the momentum is likely to face a severe test this quarter.
First-quarter capital spending rose 0.047% year-on-year, slowing down from the previous quarter’s 6.5% gain, according to Ministry of Finance data. It fell 2% on a seasonally adjusted quarterly basis.
The momentum in growth waned after robust spending in AI-related fields in previous quarters, a government official said.
Monday’s capex data also showed corporate sales rose 1.1% in the first quarter from a year earlier, and recurring profits increased 14.6%.
Capital expenditure is one of the key gauges of domestic demand-led economic growth.
Business spending remained firm in recent years, driven by corporate appetite for investment to offset a chronic labour crunch in the fast-ageing population.
Japan’s exit from deflation is also driving a shift in corporate behaviour, with companies finally deploying the large cash reserves they had long hoarded into business expansion and investment.
Prime Minister Sanae Takaichi’s government is seeking to speed up the transition by offering tax credits for capital investment and committing increased public spending to strategic sectors, including semiconductors and shipbuilding.
It is also revising the corporate governance code, urging companies to evaluate whether cash reserves are being productively deployed toward investment and growth instead of remaining idle on balance sheets.
Japan aims to double annual corporate capital expenditure to 200 trillion yen by 2040.
(Reporting by Makiko Yamazaki; Editing by Jacqueline Wong and Shri Navaratnam)
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