Japan’s government said on Tuesday that the economy is “recovering moderately,” with corporate capital expenditure emerging as the main growth driver in October. The Cabinet Office’s latest monthly economic report pointed to stronger investment in equipment, software, and digital transformation, offsetting subdued consumption and external headwinds.
“Although the impact of the U.S. trade policies is primarily affecting the automotive industry, the economy is recovering moderately,” the report said. The statement marked the third consecutive month in which the government maintained its view of gradual recovery — suggesting confidence in business-led momentum despite weak household spending.
Capital expenditure, long considered a soft spot in Japan’s post-pandemic recovery, has shown renewed strength in recent quarters. Large manufacturers expect investment to rise by 12.5 per cent in the current fiscal year ending March 2026, according to Bank of Japan data, compared with 11.5 per cent forecast in June. Businesses have accelerated spending on automation, semiconductor production, and cloud infrastructure.
Private consumption, which accounts for more than half of Japan’s gross domestic product, remains the slowest component to recover. While the Cabinet Office said household spending was “showing signs of picking up,” analysts note that wage growth and purchasing power remain weak. Retail indicators and sentiment surveys have yet to show a clear rebound.
The government also cited external risks, including potential fallout from U.S. trade measures affecting Japanese exports. Japan’s auto industry, still adapting to higher input costs and tightening emissions standards, faces additional uncertainty from tariff discussions in Washington.
The International Monetary Fund recently raised its forecast for Japan’s economic growth in 2025 to 1.1 per cent — up from 0.1 per cent a year earlier — citing a rebound in corporate investment and exports. The Bank of Japan is expected to assess these trends ahead of its December policy meeting, where it may consider whether the strength in capex justifies a further rate adjustment.
Economists view the current recovery as encouraging but incomplete. Investment gains, they say, need to translate into broader wage growth and consumer spending if Japan is to sustain momentum. “The current phase of recovery is driven by supply-side confidence rather than household demand,” said one Tokyo-based economist quoted by Reuters. “That balance will determine the economy’s resilience into next year.”
With business investment leading the cycle, Japan’s challenge now lies in ensuring the recovery extends beyond corporate balance sheets — toward a more evenly distributed domestic upturn.
