Japanese Corporate Profits, Investment Tumble on Overseas Demand

Japan’s Capital Spending fell -25.3% in the first quarter, the largest drop in at least seven years. Annual profits fell by a staggering -69.0%, with profit-to-sales ratio falling to just 1.4%, the lowest in at least 8 years. Profit margins for electronics and car manufacturers suffered the greatest losses, shrinking -6.9% and 7.1% respectively, on dwindling overseas demand. Lackluster investment in expanding or improving production capacity suggests firms are expecting a sluggish global rebound from the current downturn. This worldview is likely to translate into tepid hiring, weighing on consumption and keeping the lid on economic growth.