Growth expectations in the Japanese economy could be much lower than previously thought with the corporate sector still burdened with significant overcapacity, French firm BNP Paribas said in a report released Tuesday.
Previously, the firm had revised its trend growth rate for Japan from 'slightly under 2%' to slightly under 1%'. However, in light of recent developments with respect to capital stock, the report warned that the trend growth rate might have fallen as low as 0.5% indicating that a recovery might not be as straightforward as thought before.
The firm explained that Japanese manufacturers are still saddled with a significant amount of unprofitable capital stock as a consequence of the global credit bubble collapsing, with capital investment plunging a record 35.3% year-on-year in the second quarter - a figure that roughly corresponds to growth expectations of 0%. In all likelihood, manufacturers will have dramatically toned down long-term growth expectations on the back of waning overseas demand and also the deepening of the global financial crisis that began last year, the report said.
The long-term outlook for the non-manufacturing sector appears to be no merrier, with non-manufacturers having cut down capital investments by 25.3% annually in the second quarter - again roughly in line with growth expectations of 0% - as sales and earnings have dried up. The firm was of the opinion that non-manufacturers will have downgraded growth expectations as well, reflecting the downward shift in households' permanent income resulting from the reduced growth expectations harbored by manufacturers.
Although the worst appears to be over for the corporate sector, the firm pointed out that machinery orders - which serves a key indicator of capital investment - continues to remain flat at a record low level, implying that the nation's trend growth might have fallen to a level that is 'significantly less than 1%', rather than 'slightly under 1%' as previously estimated.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.